Standard economic theory suggests a positive relation between foreign aid and economic growth. Development
aid, in this line of thinking, adds to the recipient country capital and enhances economic growth,
contributing significantly to the productive capacity of the recipient economy (see Minoiu and Reddy, 2010, for a
review of theoretical literature). This view suggests a positive causal relation between foreign aid and economic
growth per capita. There are, however, other theoretical explanations which refute this view, claiming that foreign
aid is negatively related to economic growth. In this line of thinking, development aid is ineffective, and might even
be harmful for recipient countries as aid crowds out domestic savings by accelerating consumption expenditures,
distorts relative prices, and reduces productivity and international competitiveness.