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Foreign aid and inequality: Do conflicts matter?

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  • Ambassa, Martin
  • Mondjeli Mwa Ndjokou, Itchoko Motande
  • Tsopmo, Pierre Christian

Abstract

Existing literature on the relationship between foreign aid and income inequality (inequality) is inconclusive and the role of conflict has been underexplored. Yet, the frequency and severity of conflicts in Sub-Saharan Africa (SSA) have increased sharply in recent years. This study investigates the impact of foreign aid on inequality in SSA, focusing on the moderating role of conflicts. Using a sample of 41 SSA countries from 1989 to 2022, we employ fixed-effects and System GMM to explore the complex interplay between foreign aid, conflicts and inequality. The results suggest that foreign aid reduces inequality, but that its effectiveness is considerably reduced in conflict-ridden countries. The results confirm the harmful effect of conflict in the foreign aid-inequality nexus in SSA. Results are robust to many robustness checks, such as the alternative strategy, which combines alternative inequality and conflict measures. Our results suggest that promoting good governance by fighting corruption and preventing conflict can enable foreign aid to significantly reduce inequality in SSA.

Suggested Citation

  • Ambassa, Martin & Mondjeli Mwa Ndjokou, Itchoko Motande & Tsopmo, Pierre Christian, 2024. "Foreign aid and inequality: Do conflicts matter?," Research in Economics, Elsevier, vol. 78(4).
    • Handle: RePEc:eee:reecon:v:78:y:2024:i:4:s1090944324000723
    DOI: 10.1016/j.rie.2024.101008
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    More about this item

    Keywords

    Conflict; Foreign aid; Income inequality; Sub-Saharan Africa;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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