Aid, Foreign Private Investment, Savings, and Growth in Less Developed Countries

Abstract

Cross-country regression analysis is applied to thirty-four countries for the 1950s and fifty-one countries for the 1960s. When foreign aid, foreign investment, other inflows and domestic savings are treated as separate independent variables: (a) savings and foreign inflows explain over a third of growth; (b) foreign aid has a substantially greater effect than the other variables; (c) correlation between aid and foreign private investment is not significant; (d) only for Asia do the four variables explain much; and (e) growth is not correlated with exports, education, per capita income, or country size. Savings are highly correlated with exports and per capita income, not with country size.