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

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.