JBS Vol 02. Num 2. 2000 - MACROECONOMIC EFFECTS OF FOREIGN AID IN BANGLADESH REVISITED

This paper revisits the topic of macroeconomic effects of foreign aid in Bangladesh and finds, in line with the radical
anti-aid view, that aid has reduced both GDP growth and domestic savings in Bangladesh. However, the effects of
aid on growth were found less damaging than predicted by the radical view. A Keynesian interpretation of the
estimated results suggests that by raising consumption expenditures, aid also stimulates the demand-constrained
Bangladesh economy, which causes greater utilization of production capacities. In turn, it increases national output
through a multiplier-accelerator mechanism. Thus, aid induces indirect positive effects on GDP growth through
increased consumption demand, which offset much of the direct adverse effects of aid.