Poverty reduction and aid: cross‐country evidence

Abstract

Purpose The purpose of this paper is to examine the impact of foreign aid on poverty. Poverty reduction has lately become an issue of great interest after the adoption of the United Nations Millennium Development Goals in which the international community has set the goal to halve poverty by 2015. Design/methodology/approach This paper uses pooled time‐series and cross sectional data from 49 developing countries. Findings The paper finds that foreign aid is effective in reducing poverty. This contradicts previous literature. Originality/value The paper introduces foreign aid as another determinant of poverty in a regression model and suggests that growth‐promoting and policies intended to reduce inequality are also effective in reducing poverty.