Is Aid the Capital Component Making Countries Efficient? A Non-Parametric Production Theory Approach

Cross country regressions on aid effectiveness have failed to providesubstantial evidence on the effects of foreign aid. This study focuseson country performance in a production theory context. By meansof the non-parametric DEA method, we study 60 individual low andmiddle income countries over a six year period. Is there a systematiccorrelation between resource intensity and country efficiency? We findindications of a positive relation between capital intensity and country efficiency. We then investigate whether aid is the conclusive part of capital providing this correlation, but when linking country efficiency development to aid such a pattern is not to be found.