In fact, many studies have criticized foreign aid, stating that it does not promote what it should, such as investment and less poverty, but what it should not, such as more government peter boone, 1996. This paper investigates the impact of foreign aid on economic growth in member countries of the economic community of west african states using panel data for 19902009 and a three equation simultaneousequations model. A study of the relationship between foreign aid and human. The size of the e ect puts the result somewhere between the arguments of aid optimists and those of aid pessimists. What the literature says and what the reality is, journal of african studies and development, v ol. The cases of angola and mozambique within the ticad process. Foreign aid, economic growth and efficiency development, and is the first of a series of studies investigating aid effectiveness in a production theory context. Pdf previous empirical studies on the effects of foreign aid on economic growth have generated mixed results that make it difficult to draw.
This is mainly due to our panel and longdifference. Foreign aid and the planning approach to economic development. This sadev report is part of the wider project theme. The effects of foreign aid in subsaharan africa edge european. Although the initial intention of foreign aid is to help, we should know that it does have its drawbacks.
Also as klitgaard described, foreign aid in africa has constituted even more than 50% of government revenue in the 30 most aiddependent countries in 19701990. Does foreign aid in education promote economic growth. Accepted 26 october, 2009 evidence of ineffective foreign assistance is widespread in africa. The impact of foreign aid on economic growth in ecowas. This can be seen from the rise in the numbers of school going children, the current ease in the accessibility of health services, the current efficiency of armies and the sister security organs, the increase in. The impact of foreign aid on the economic growth of. Foreign aid, economic growth and efficiency development. The debate on how aid can be effective and contribute to africa s development is, however, still ongoing without any clear way forward. Many studies have tried to assess the effectiveness of aid at the micro and macrolevel. The effect of foreign aid on economic growth in developing. New evidence on the impact of foreign aid on economic growth. However, it is observed that foreign aid has negatively correlated with democracy and corruption levels in the country. However, the study by griffin demonstrated that the macroeconomic effects of aid during.
Economic development and the effectiveness of foreign aid. Enticed by previous research such as samia satti nour 2010 on impact of chinaafrica aid relation. It also found that aid, accompanied by growing exports. Foreign assistant can also provided through physical or financial form. This paper adopts a deductive approach to explaining aid and development in africa. Comparing with the most region countries, albania has received foreign aid per capita in growth table 1. China, africa and the international aid architecture. Aid is an important policy instrument for china among its various engagements with africa, and indeed africa has been a top recipient of chinese aid.
As such, the effectiveness of aid in subsaharan africa is of particular interest to researchers and both donor and recipient countries alike. Impact of chinas aid on economic development in africa. Impact of foreign aid in developing countries freebalance. Other important drivers of economic growth include. We find that i aid in primary education has a positive and significant effect on growth. One purpose of the report is to investigate whether foreign aid improves the efficiency of resource use in a country in the short term. Foreign aid inflows have grown significantly in the postwar period. The effect of foreign aid on economic growth among these ecowas countries was found to be positive and strong. It is an undeniable fact that foreign aid has extensively, intensively and forwardly steered the economies in africas countries.
There is a high volume of literature on the impact of foreign aid on development in africa, yet not many of them. Previous empirical studies on foreign aid and economic growth generate mixed results. As foreign aid remains a major source of income for many lowincome countries in africa, it is important to consider its implications for these. Aid effectiveness will therefore continue to occupy a central position in the debate on development in africa. Western impact on africas economic development and the. Ngos, public sector through which the eu distributes its aid, and the eus performance in allocating aid. While microevaluations have found that in most cases aid works, those at the macrolevel are ambiguous. Africa is in desperate need of foreign aid and foreign direct investment.
Evidence of ineffective foreign assistance is widespread in africa. The results on the full sample indicate a small increase in economic growth following a fairly substantial aid shock. Foorreeiiggnn aaiidd iinn aaffr riic ca a rrool lee. This study employs the fixed effect regression quantitative model to analyze the impact of foreign aid on corruption and socioeconomic. For subsaharan africa, levy 1988 reports a significant positive relationship in a regression model including aid as a ratio of gdp and income per capita, for. Section v will analyze the impact of foreign aid on political stability, as well as discuss the possible limitations of our analysis. Pdf the impact of foreign aids in subsaharan africa. The hypothesis states that foreign aid has had a positive impact on subsaharan africas development agenda and that poor policy environment in subsaharan africa has been a cause of ineffective application of foreign aid. Foreign aid has been accused of not promoting economic growth and development in developing countries. Foreign aid is of particular importance to africas human development programme.
In this paper we will study the factors, advantages and disadvantages with respect to change in their income level, standard of living etc. The role of foreign aid in the growth process of developing countries has been a topic of intense debate. But the impact of foreign aid seems to be far from being felt in kenya as evidenced by unimpressive gdp growth rates and entrenching poverty. At the onset, foreign aid is there to save lives particularly during calamities and disasters, like in the case of natural disasters. The issue is what impact it has on economic development. A vector autoregression model is applied to a panel of subsaharan african countries. Development assistance is also associated with reduced domestic borrowing in uganda. Indeed, if the effectiveness of foreign aid to this part of africa were not debatable or questioned, this subject would not even be discussed. More still these two questions show that the impact of foreign aid on economic growth in africa is torn between the ends of a seesaw, that is, highly raised on the side of gdp growth in a shameful coexistence with severely lowered dwindling livelihoods. The impact of foreign aid on human development in africa. The impact of foreign aid united nations university. To estimate the impact of foreign aid on the economic growth of kenya ii.
The debate on how aid can be effective and contribute to africas development is, however, still ongoing without any clear way forward. There is therefore need to determine how aid translates to growth in kenya. Foreign aid and its importance in relieving poverty. It was because of the deteriorating situation in africa, and the need to find a way out of that situation, that a group of development research institutes jointly. Despite the limitations of the current literature, in this. Research brief the impact of foreign aid on the fiscal behaviour of the ugandan government wider. One aspect of aid effectiveness and its impact on poverty is how aid is allocated by the donor. Does foreign aid contribute to or impeded economic growth. Advantages and disadvantages of foreign assistance in albania 127 figure 1. This paper assesses the impact of foreign aid on growth for a large sample of. The effect of foreign aid on econmic growth and corruption in 67 developing countries a thesis submitted to the faculty of the graduate school of arts and sciences of georgetown university in partial fulfillment of the requirements for the degree of master of public policy by vanarith chheang, b. We comprehensively analyse the longrun effect of foreign aid oda on key macroeco nomic variables in 36 subsaharan african countries from the mid 1960s.
Foreign aid has had a positive impact on health and humanitarian needs. Karras 2006 also found a positive impact of foreign aid on economic growth using data from 1960 through 1997 for 71 developing countries. The main objective of this study is to empirically examine the impact of foreign aid on this region over the period 1970 to 2012, through fixed effect panel data analysis. Regardless of the increased inflow of aid and its huge potential to steer up the nations economic growth by bridging its foreign exchange and savings gaps, the country continues to suffer from chronic economic hardship in addition to scoring very low in its human development ranking. It found that despite setbacks in subsaharan africa and some countries of latin america, many developing countries had achieved remarkable economic and social growth over the past quartercentury. The most difficult relates to the millennium developments goals mdgs. Impact of foreign aid on economic growth in africa the. Foreign aid is an important topic given its implications for poverty reduction in developing countries. Although, the amount of foreign aid has been continuously increasing, ethiopia has remained one of the most corrupt and authoritarian african countries according to related indices. According to sebastian edwards, the overall findings of a large body of research have been fragile and inconclusive, with some experts concluding that in the best of cases, it was possible to say that there was a small positive, and yet statistically.
Foreign aid and economic growth in subsaharan africa. Assessing the role of foreign aid, donors and recipients. Using data on 38 african countries from afrobarometer, aiddata, and the aid information management systems aims of african finance and planning ministries, we find that, if anything, chinese aid to africa reduces beneficiaries support for china while increasing support for the us and other western powers. In the wider working paper the longrun impact of foreign aid in 36 african countries. The vast literature regarding the effects of foreign aid on growth in developing nations is limited by data availability, lack of knowledge regarding how aid affects growth, and economic specification disagreements. Longrun impact of foreign aid in african countries 155 unrestricted form, a convenient reformulation of the covariances of the data and as such can be used as a solid basis for much needed generaltospeci. The biggest upside appears to be the injection of large sums of money into developing countries otherwise gripped by poverty, war and conflict. The principal mdg target reducing the proportion of people living in extreme poverty to half the 1990 level by 2015 on current trends will not be achieved in subsaharan africa. Total foreign aid, loan and grants in 20002010 milion source. A study by karras 2006 investigates the correlation between foreign aid and growth in per capita gdp using annual data from the 1960 to 1997 for a sample of 71 aidreceiving developing countries.
There is a high volume of literature on the impact of foreign aid on development in africa, yet not many of them recognize all the factors that. Using a pooled mean group estimator pmg, ndambendia and njoupouognigni 2010 found a positive impact of foreign aid on economic growth in subsaharan africa. This method allows one to analyse the impact of foreign aid on human development and. Oecddac for the period 20002005, the database of donors dsdc for 2006 2010. In this context, the objective of this paper is to assess the role foreign aid problem in development in africa, improve the understanding of the economic, institutional and governance impact of aid dependence and provide suggestions on how to make more effective use of aid and ultimately manage a smooth exit from aid dependence. This paper concludes that the effect of foreign aid on economic growth is.