Foreign aid and economic growth in sub-Saharan Africa
African Journal of Economic and Management Studies
ISSN: 2040-0705
Article publication date: 23 December 2019
Issue publication date: 9 March 2020
Abstract
Purpose
The purpose of this paper is to empirically examine the effectiveness of foreign aid in improving economic growth prospects in the sub-Saharan Africa (SSA) region from 1993 to 2017.
Design/methodology/approach
A sample of 45 SSA countries for the period 1993–2017 is considered for this study. The study uses various econometrics tools such as Pedroni and Kao’s cointegration test, Johansen-Fisher Panel cointegration test, FMOLS and PDOLS in order to ascertain the long-run and short-run dynamics among the variables under consideration.
Findings
The empirical results find that long-run and short-run relationships exist among foreign aid, economic growth, investment, financial deepening, price stability and trade openness of the SSA economies. The authors also find unidirectional causality running from foreign aid to economic growth. The policymakers in these countries are well-advised to implement suitable policy measures to build on the growth momentum created by foreign aid inflows.
Originality/value
The study uses a dynamic macroeconomic modeling framework to assess the impact of aid flows on economic growth in the SSA region. Taking into account the diversity of level of growth experienced by the 45 countries in the region, the study uses an appropriate regression technique, i.e., panel dynamic OLS whose results are robust. The finding is also supported by the Granger-causality test and robust cointegration techniques.
Keywords
Acknowledgements
The authors are grateful to the editor, associate editors and anonymous referees of the journal for their extremely useful suggestions to improve the quality of the paper. Usual disclaimers apply.
Citation
Jena, N.R. and Sethi, N. (2020), "Foreign aid and economic growth in sub-Saharan Africa", African Journal of Economic and Management Studies, Vol. 11 No. 1, pp. 147-168. https://doi.org/10.1108/AJEMS-08-2019-0305
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited