Shifts in international development aid and its impact on economic growth

This chapter examines how the disbursement patterns of multilateral aid from traditional donors have changed in the wake of the new form of development assistance given by China to five South Asian countries, namely Afghanistan, Bangladesh, Nepal, Pakistan, and Sri Lanka, during the period 2000–2014 and, subsequently, to what extent the multilateral aid and Chinese development assistance (CDA) have been effective in enhancing economic growth in the recipient countries. The analysis revealed that CDA has seen significant growth during the period of concern, while multilateral aid from traditional donors has continued to be the dominant source of foreign development assistance in the selected South Asian countries. We also observe a negative relationship between the growth rates of CDA and multilateral aid in Bangladesh, Nepal, Pakistan, and Sri Lanka. The individual country results indicated that multilateral aid disbursements had had a higher positive impact on economic growth in Afghanistan, Bangladesh, Nepal, and Pakistan, while CDA appears to be slightly more impactful on economic growth in Sri Lanka. The panel data estimation results indicated that both CDA and multilateral aid played a positive role in enhancing economic growth in these countries and the positive effect of multilateral aid is higher than CDA.