Effectiveness of Foreign Aid and Social-Economic Variables on HDI: A Comparative Study between Bangladesh and India

Abstract

This paper investigates the hypothesis that aid is meant to improve HDIs
and assesses whether foreign aid can help recipient countries to reach some of their
goal. This paper focuses on economic development rather than economic growth.
To do this we examine whether aid flows have a positive impact on selected HDIs or
not. In this research, we use the Human Development Index (HDI) as dependent
variable, to represent quality of life and consider some human development
indicators as explanatory variables along with ODA to justify whether there is any
effectiveness of aid in India and Bangladesh for eradication of extreme poverty and
to improve the quality of life. The empirical analysis shows that India is in better
condition in terms of GDP per capital and GNI per capital growth, CO2 emission
and prevalence of HIV but Bangladesh is much ahead than India with respect to all
social variables. This research also shows that the contribution of ODA in capital
formation is much higher in case of Bangladesh but the GNI per capital growth is
lower than in India which indicates that ODA is not using properly to improve the
gross national income of Bangladesh. For better outcome from foreign aid, ODA
must be coordinated through administrative framework and Government of
Bangladesh should encourage the inflow of foreign aid.