Aid, social policies and pro‐poor growth

Recent literature reports that foreign aid contributes to economic growth when economic policies are good. This paper claims that aid can contribute not just to growth but also to pro‐poor growth, through increasing the responsiveness of social indicators to economic growth. The empirical evidence we present is in favour of this claim, suggesting that both aid itself and a recipient government's budget share allocated to social services tend to increase the (absolute) size of the income elasticity of poverty and infant mortality, and that, moreover, aid tends to increase this budget share.