Nexus Between Official Development Aid, Institutional Quality and Economic Growth: Evidence from CLMV Countries

Abstract

This study examines the effect of country-specific Official Development Aid (ODA) and institutional quality on the economic growth of Cambodia, Laos, Myanmar, and Vietnam (CLMV) countries from 2002 to 2017. Our results indicate that: First, the impact of ODA from Germany, Japan and France on economic growth is conditional on the level of institutional quality of CLMV countries. The ODA has a negative impact on growth when institutional quality is low. Beyond a threshold of institutional quality, ODA promotes economic growth. Second, the results are robust after controlling for outliers and endogeneity in the model. This study offers some imperative policy recommendations to donor countries and ODA recipients based on the findings.