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The objective of this study is to explore the dynamic inter-linkage between foreign aid and economic growth in Sri Lanka over the period of 1960–2018.

Both exploratory and inferential data analysis tools have been employed to examine the objective of this study. The exploratory data analysis covered the scatter plots, confidence ellipse with kernel fit. The inferential data analysis included the augmented Dickey–Fuller (ADF) and Phillips–Perron (PP) unit root tests, the autoregressive distributed lag (ARDL) Bounds co-integration technique and the Granger causality test.

The test result of exploratory data analysis indicates that there is a positive relationship between foreign aid and economic growth. The ADF and PP unit root tests results indicate that the variables used in this study are stationary at their 1st difference. The co-integration test result confirms the presence of long-run relationship between foreign aid and economic growth in Sri Lanka. The estimated coefficient of foreign aid in the long-run and the short-run shows that foreign aid has a positive relationship with economic growth in Sri Lanka. The estimated coefficient of error correction term indicates that approximately 26.6% of errors are adjusted each year and further shows that the response variable of economic growth moves towards the long-run equilibrium path. The Granger causality test result shows that foreign aid in short-run Granger causes economic growth in Sri Lanka which means that one-way causality from foreign aid to economic growth is confirmed. Further, the estimated coefficient of error correction term confirms that there is the long-run Granger causal relationship between foreign aid and economic growth in Sri Lanka.

The findings of this study have some important policy implications for the design of efficient policy related to foreign aid and economic growth, the knowledge of which will help follow sustainable foreign aid and growth nexus.

This study contributes to the existing literature by using the newly introduced ARDL Bounds cointegration technique to investigate the dynamic inter-linkage between foreign aid and economic growth in Sri Lanka.

The purpose of this study is to examine the interactive role of human capital development (HCD) in foreign aid-growth relations in South Asia and sub-Saharan Africa countries from 1985–2019.

The study used panel data that cut across all countries in South Asia and sub-Saharan Africa collected from The World Bank’s Development Indicators. The data were analysed using Bai and Ng panel unit root idiosyncratic cross-sectional tests and the system generalised method of moments (SGMM).

The study found that foreign aid and HCD have negative impacts on economic growth. Fortunately, the interaction of human capital with foreign aid reduces the extent to which foreign aid impedes economic growth. The presumption is that South Asia and sub-Saharan Africa economies had not reaped the potential growth effect of foreign aid inflows due to high illiteracy rates and weak social capacities. The peculiarity of these regions hinders the absorptive capacity to transform positive externality associated with foreign aid into sizeable economic prosperity.

It is imperative for South Asia and sub-Saharan Africa countries to not depend on foreign aid; instead, the strategic action by policymakers should be to developing sustainable social capacities with HCD as the centre-piece.

The highpoint of this study is its inter-regional approach and the interplay between human capital and foreign aid using the second generation panel unit root estimator and the SGMM approaches.

The purpose of this paper is to empirically examine the effectiveness of foreign aid in improving economic growth prospects in the South Asian region from 1996 to 2017.

A sample of eight South Asian countries for the period 1996–2017 is being considered for this study. This study uses various econometrics tools such as Pedroni and Johansen–Fisher panel cointegration test, panel fully modified ordinary least square and panel dynamic ordinary least square (PDOLS) to ascertain the long-run and short-run dynamics among the variables under consideration.

The empirical results found that long-run, as well as the short-run relationship, exist among foreign aid, economic growth, investment, financial deepening, price stability and trade openness of the South Asian economies. The authors also found unidirectional causality running from foreign aid to economic growth. Both the long-run relationship as well as short-run causality between foreign aid and economic growth is unequivocally positive.

This study uses a dynamic macroeconomic modeling framework to assess the impact of aid flows on economic growth in South Asian economies. Taking into account the diversity of level of growth experienced by the eight countries in the Asian region, this study uses an appropriate regression technique, i.e. PDOLS whose results are robust. Therefore, the policymakers in these countries are well-advised to implement suitable policy measures to ensure optimum utilization of foreign capital resources garnered by way of receipt of foreign aid and build on for stronger future economic growth.

The purpose of this study is to examine the effect of foreign capital inflows on economic growth in 15 Economic Community of West African States (ECOWAS) countries over the period 2008–2018. Specifically, this paper investigates whether selected foreign capital inflows, namely, foreign debt, foreign aid and foreign direct investments substitute or complement government spending in ECOWAS.

The study adopts the two-step system generalized method of moments (GMM) method of estimation to address the problem of dynamic endogeneity inherent in the relationship.

The result shows that foreign capital inflows into ECOWAS region have not transmitted into economic growth in the region. Further, the findings reveal that foreign capital inflows to ECOWAS have substituted for government spending. The results might be as a result of the high level of corruption in ECOWAS. The results also show that when institutional quality is interacted with foreign capital inflows, the result shows a negative and statistically significant effect on economic growth.

Unlike previous studies which pooled both developed and developing economies together, the authors investigate this relationship in a regional study, using ECOWAS to create a roughly optimum size. In addition, the authors adopt the GMM-system method of estimation to address the problem of dynamic endogeneity inherent in the relationship, which has largely been ignored in extant studies.

The purpose of this study is to investigate the role of foreign aid in the Western Balkans countries’ economic growth between 2009 and 2021.

This paper uses a panel data approach to examine the effects of foreign aid on economic growth in the region and incorporates a random-effects model to accommodate the unique cross-country variations and time-specific factors, as well as a pooled OLS and fixed-effects model for a comprehensive, comparative analysis.

The in-depth regression analysis shows that foreign aid has not had a significant impact on the economic growth of the region. Further evidence suggests that trade openness exhibited a significant positive correlation with economic growth, while gross capital formation, although positively associated, did not significantly impact it, indicating the complexity of its role in the region’s economies.

The analysis presented in this study has significant practical implications, particularly for policymakers in the Western Balkans. Given the region’s ambitions for European Union membership and the challenges of high unemployment and inflation, understanding the role of foreign aid is crucial.

This research provides a unique contribution to the field of development economics by examining foreign aid effectiveness within the context of a region often overlooked in the literature. The analysis also offers fresh insights into the complex dynamics of foreign aid and its implications for policy and development strategies.

This paper has examined the effectiveness of foreign aid on Ghanaian economy under different political regimes.

Using vector error correction and co-integration models on the annual data set over a period of 35 years, the authors demonstrate that foreign aid has had varied impacts on economic growth depending on the political ideology of the government in power.

With capitalist political philosophy, foreign aid improves private sector growth through infrastructural development. On the other hand, a government with socialist philosophy applies most of its foreign aid in direct social interventions with the view of improving human capital. Thus, each political party is likely to seek foreign aid/grant that will support its political agenda. Overall, the results show that foreign aid has a positive impact on the growth of the Ghanaian economy when there is good macroeconomic environment.

This implies that the country experiences economic growth when there are sound economic policies to apply foreign aid.

The practical implication of the findings of this paper is that donor countries and agencies should consider the philosophy of the government in power while granting aid to recipient countries, especially in Africa. The results are robust to different proxies and models.

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.

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.

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.

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.

The purpose of this paper is to investigate the long-run impact of foreign aid and workers’ remittances on Jordanian economic growth using time series data for the period 1970–2014. Following the most recent literature, the author also assess whether economic policy enhances economic growth and whether aid effectiveness is conditional on levels of economic policy.

The author employs unit root tests that allow for endogenously determined structural breaks (Perron, 1997) and properly utilize the autoregressive distributed lag (ARDL) or bounds testing approach to cointegration by applying both the F- and the t-test statistics (Pesaran et al., 2001). The analysis is applied to 12 different models that incorporates the various types and sources of foreign aid.

Empirical results suggest that aid and its various components, and workers’ remittances have had a positive and significant long-run impact on economic growth. Empirical results also show: no evidence supporting the hypothesis that aid is only or more effective in spurring economic growth during periods of “good” macroeconomic policy, i.e., when Jordan has undertaken World Bank Structural Adjustment Programs (SAPs); no robust evidence supporting the World Bank’s claim that SAPs are growth enhancing. Moreover, the author found strong empirical evidence suggesting that exports and human capital are also major determinants of long-run growth in Jordan.

Although Jordan and the region at large have experienced periods of major political instability that may have had a varying impact on the economy, lack of a reliable and lengthy time series measure that accounts for political instability is not available to include in the study.

Using cointegration analysis, our empirical evidence reveals that foreign aid, labor remittances, exports and human capital have had a robust positive long-run impact on economic growth. Hence, the Jordanian government should promote policies that encourage donor countries and agencies to further extend aid to Jordan. Moreover, policies that promote exports and facilitate labor mobility to neighboring countries should also be encouraged and promoted.

Despite receiving a significant amount of foreign aid and labor remittances in the last 50 years, the author found no time series study that tested the long-run impact of these external financing sources on growth in Jordan. This study fills that gap and extends the analysis to test whether macroeconomic policy is growth enhancing and whether aid (and several of its components) are only effective or more effective in promoting growth during periods of “good” macroeconomic policy, i.e., when Jordan has undertaken a World Bank SAP.

Presents an empirical analysis of the relationship between development assistance and economic growth for the case of Fiji. Foreign aid to the island economies is a major source for foreign exchange and resource needs. A neoclassical production function is applied in this study to estimate the aid‐growth nexus. Components of total aid, such as grant aid, loan aid, technical co‐operation, bilateral and multilateral aid flows are also employed to estimate a disaggregated impact of foreign aid in the short run and in the long run. The results show that bilateral aid, grant aid, and technical co‐operation grant have a significant impact on economic growth in Fiji. On the other hand, domestic resources do not contribute significantly to economic growth in Fiji.

This paper aims to assess whether official development assistance (ODA) or foreign aid has been effective in reducing extreme poverty; test whether the type and source of aid matter; and examine whether political or economic freedom enhances aid effectiveness in developing countries.

The study uses recent dynamic panel estimation techniques (system generalised method of moments), including those methods which deal with endogeneity by controlling for simultaneity and unobserved heterogeneity.

The main findings of the study are: firstly, foreign aid does have a statistically significant poverty reduction effect and the results are consistent across all the three extreme poverty proxies. Secondly, the disaggregation of aid by source and type shows that total aid, grant and bilateral aid are more likely to reduce poverty. Thirdly, political freedom might not be an effective channel through which aid impacts extreme poverty, but aid is more effective in an environment where there is respect for freedom of enterprise.

As with most cross-country aid–growth–poverty dynamic panel data studies, the challenges of establishing robust causality and accounting for the unobserved country-specific heterogeneity remain apparent. However, given the data availability constraints, generalised method of moments is, to the best of the authors’ knowledge, the most robust empirical strategy when T < N. Future research could explore possibilities of individual country analysis, disaggregating countries by income and also examining the direction of causality between foreign aid, poverty and democracy.

The policy implications are that the development partners should continue to focus on poverty reduction as the main objective for ODA; aid allocation should be focused on channels which have more poverty-reduction effect, such as per capita income and economic freedom; and aid recipient countries should also focus on reducing inequality.

The main social implications from this study is that it is possible to reduce poverty through ODA. Second, to enhance the effectiveness of foreign aid, ODA allocation should be focussed on channels, which have more poverty-reduction effect, and the host countries should have economic freedom.

This paper makes a further contribution to the aid effectiveness literature, especially the channels through which foreign aid affects poverty.