Aid Unpredictability and Economic Growth

In this paper, we examine the influence of unpredictable aid on a recipient’s economic growth. If aid amounts vary by year and the changes are unpredictable, we expect that this “unpredictability” decreases aid’s growth-enhancing effect. This naturally raises the questions: How large is the influence of aid “unpredictability” on a recipient’s economic growth? Does “unpredictability” significantly damage aid’s growth-enhancing effect? Our research shows that the impact is significant; in a typical case, one fifth of aid is wasted due to “unpredictability.” Further, it is possible that in some cases, the aid may be wasted by as much as one third.