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Foreign Aid and Economic Growth: A Cointegration Analysis of the Six Poorest African Countries

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  • Malik, Girijasankar

    ()
    (School of Economics and Finance (Parramatta Campus), University of Western Sydney, Locked Bag 1797, Penrith South DC, NSW 1797)

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    Abstract

    After more than thirty five years of development assistance, the people in the poorest African countries are still living in poverty. Their real per capita income since 1965 has either declined or remained stagnant. The obvious question is: why could these countries not break the poverty trap despite receiving large inflows of foreign aid? This paper examines the effectiveness of foreign aid for economic growth in the six poorest and highly aid dependent African countries, namely the Central African Republic, Malawi, Mali, Niger, Sierra Leone and Togo. Using cointegration analysis, we have found that a long run relationship exists between per-capita real GDP, aid as a percentage of GDP, investment as a percentage of GDP and openness. However, the long run effect of aid on growth was found to be negative for most of these countries.

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    Bibliographic Info

    Article provided by Queensland University of Technology (QUT), School of Economics and Finance in its journal Economic Analysis and Policy (EAP).

    Volume (Year): 38 (2008)
    Issue (Month): 2 (September)
    Pages: 251-260

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    Handle: RePEc:eap:articl:v:38:y:2008:i:2:p:251-260

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    Keywords: Foreign Aid; Economic Growth; Openness; Cointegration;

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    1. Papanek, Gustav F, 1973. "Aid, Foreign Private Investment, Savings, and Growth in Less Developed Countries," Journal of Political Economy, University of Chicago Press, vol. 81(1), pages 120-30, Jan.-Feb..
    2. Bacha, Edmar L., 1990. "A three-gap model of foreign transfers and the GDP growth rate in developing countries," Journal of Development Economics, Elsevier, vol. 32(2), pages 279-296, April.
    3. Burnside, Craig & Dollar, David, 1997. "Aid, policies, and growth," Policy Research Working Paper Series 1777, The World Bank.
    4. Levy, Victor, 1988. "Aid and growth in Sub-Saharan Africa: The recent experience," European Economic Review, Elsevier, vol. 32(9), pages 1777-1795, November.
    5. Vasudeva Murthy & Victor Ukpolo & John Mbaku, 1994. "Foreign aid and economic growth in Cameroon: evidence from cointegration tests," Applied Economics Letters, Taylor & Francis Journals, vol. 1(10), pages 161-163.
    6. Burke, Paul J. & Ahmadi-Esfahani, Fredoun Z., 2006. "Aid and growth: A study of South East Asia," Journal of Asian Economics, Elsevier, vol. 17(2), pages 350-362, April.
    7. Kosack, Stephen & Tobin, Jennifer, 2006. "Funding Self-Sustaining Development: The Role of Aid, FDI and Government in Economic Success," International Organization, Cambridge University Press, vol. 60(01), pages 205-243, January.
    8. Weisskopf, Thomas E., 1972. "The impact of foreign capital inflow on domestic savings in underdeveloped countries," Journal of International Economics, Elsevier, vol. 2(1), pages 25-38, February.
    9. Griffin, Keith, 1971. "Foreign Capital, Domestic Savings and Economic Development: Reply," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 33(2), pages 156-61, May.
    10. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
    11. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
    12. John Mukum Mbaku, 1994. "Foreign aid and economic growth in Cameroon: a reply," Applied Economics Letters, Taylor & Francis Journals, vol. 1(4), pages 55-57.
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    Cited by:
    1. Rajarshi Mitra & Md. Sharif Hossain, 2013. "Foreign Aid and Economic Growth in the Philippines," Economics Bulletin, AccessEcon, vol. 33(3), pages 1706-1714.

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