Aid, Policy, and Growth: The Case of Nepal

The debate over aid effectiveness has produced a large number of cross-sectional studies, while case studies of individual countries remain extremely limited, probably due to the lack of disaggregated data. This paper contributes to aid-, policy-, and growth literature using data from Nepal, a country that has been one of the highest recipients of aid in the developing world. Our findings suggest that aid, in the presence of sound economic policy, contributes to growth. However, we did not find any statistical evidence to suggest that democratic governance and openness impact the effectiveness of aid in Nepal.