Rainfall Variability, Foreign Aid and Economic Growth in Sub-Saharan Africa

In this study, we address a broad question that relates foreign development aid to economic growth in 41 Sub-Saharan African (SSA) countries employing panel data spanning a twenty-five-year period. The panel data was analysed using fixed effect Ordinary Least Square model. We explored the within-country rainfall distribution to identify the impact of foreign development aid per capita (Value of Official Development Assistance)on GDP per capita. Identifying aid with exogenous rainfall shocks will plausibly address the endogeneity bias identified in previous studies. In the first stage, we find that rainfall shocks negatively correlate with amount of aid per capita received suggesting that countries with negative economic shock receive more foreign assistance than countries without. However,in stage two, we find that aid per capita has a statistically weak and negative impact on income per capita in the region.We can identify several practical reasons why aid may fail to translate to growth in this region. For one, because aid is a form of unearned rents, aid meant for public consumption could be privately appropriated by political elites, distort capital accumulation, and could undermine the broader economic development when there is an income shock. While SSA countries receiving aid may not grow faster than countries without, aid might still play an economically useful role at the micro-level. Specifically,aid could be beneficial if local inputs at the micro-level are actively involved in allocation of resources and deployed for the identification of developmental needs.Aid could also be useful at suppressing civil conflict associated with climate vagaries.