estimates. However, domestic savings and private capital inflow rather seem to explain the substantial differences in the performance between the groups of slow and fast growing Asian countries than variations within these country groups. Yet, the domestic savings rate was found to be of greater importance for GDP growth in the slow growing South Asian countries than foreign aid to these countries. Whether this low effectiveness of aid is due to an inefficient use or to long gestation and payoff periods cannot be determined on a cross-country basis.
The above result suggests that economic policies have been conducive to a productive allocation of foreign aid (and the other resources), especially in high growth countries of the Asian region. Incorporating various aspects of govern ment policies into the regressions points at liberal trade and financial policies as means of improving the overall growth performances in the case of high growth countries. Liberal trade policies seem to play an even more important role in explaining income growth in slow growing countries together with improvements in government tax revenues. The share of government expenditure in GDP was not found to have a significant impact on growth in either country group.
It should be kept in mind, however, that precise policy conclusions for in dividual countries cannot be drawn from cross-section analysis of the type presented in this paper. To do this would require more detailed study of country specific institutions and interactions between the government and the private sector within a time-series context.