This study contributes to the aid-effectiveness debate using panel data from 43 sub-Saharan African countries over the period 1980-2013. Its novelty lies in assessing the intermediary role of institutions and the importance of recipient and donor heterogeneity. The long-run growth effect of (aggregate) aid from traditional donors is robustly non-positive, and the indirect effect is negative. Disaggregation reveals donor heterogeneity. Chinese aid outperforms aggregate aid from traditional donors with respect to growth; however, it has a negative institutional effect. Recipient heterogeneity is largely a short-run phenomenon, with only a few countries showing some deviations from shared long-run parameter sets. Comparing donor behavior suggests that the future of aid would benefit more from focusing on quality - particularly, specialization and donor alignment.
- PANEL-DATA APPROACH