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Development thresholds of foreign aid effectiveness in Africa

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  • Asongu Simplice

Abstract

Purpose - – The purpose of this paper is to examine whether initial levels in GDP growth, GDP per capita growth and inequality adjusted human development matter in the impact of aid on development. In substance its object is to assess if threshold development conditions are necessary for the effectiveness of foreign aid in Africa. Design/methodology/approach - – The panel quantile regression technique enables us to investigate if the relationship between development dynamics and development assistance differs throughout the distributions of development dynamics. Findings - – Three main findings are established. First, with slight exceptions, the effectiveness of aid in economic prosperity (at the macro level) increases in positive magnitude across the distribution. This implies high-growth countries are more likely to benefit from development assistance (in terms of general economic growth) than their low-growth counterparts. Second, the positive nexus between aid and per capita economic growth displays nonlinear patterns across distributions and specifications, with the correlations broadly higher in top quantiles than in bottom quantiles after controlling for the unobserved heterogeneity. Third, the aid-human development nexus is negative and almost similar in magnitude across distributions and specifications. Practical implications - – As a policy implication, there is need to improve management of aid funds destined for health and education projects in the sampled countries. Moreover, given the magnitude of the nexuses, while blanket aid initiatives could be applied for policies targeting the human development index (due to the absence of significant differences in the magnitude of estimated coefficients), such are unlikely to succeed for aid targeting economic prosperity at macro and micro levels. From the weight of the findings, given a policy of balancing the impact of aid, it could be inferred that low-growth countries would need more aid than their high-growth counterparts because of the less positive effects in the former countries. Originality/value - – This paper contributes to existing literature on the effectiveness of foreign aid by focussing on the distribution of the dependent variables (development dynamics). It is likely that high- and low-growth countries respond differently to development assistance.

Suggested Citation

  • Asongu Simplice, 2014. "Development thresholds of foreign aid effectiveness in Africa," International Journal of Social Economics, Emerald Group Publishing, vol. 41(11), pages 1131-1155, November.
  • Handle: RePEc:eme:ijsepp:v:41:y:2014:i:11:p:1131-1155
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    Cited by:

    1. Asongu, Simplice A. & Odhiambo, Nicholas M., 2021. "Inequality, finance and renewable energy consumption in Sub-Saharan Africa," Renewable Energy, Elsevier, vol. 165(P1), pages 678-688.
    2. Asongu, Simplice & Nwachukwu, Jacinta, 2015. "Foreign aid volatility and lifelong learning: demand-side empirics to a textual literature," MPRA Paper 67853, University Library of Munich, Germany.
    3. Simplice A. Asongu & Vanessa S. Tchamyou, 2019. "Foreign Aid, Education and Lifelong Learning in Africa," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 10(1), pages 126-146, March.
    4. Simplice A. Asongu & Joseph Nnanna, 2019. "Foreign aid, instability and governance in Africa," Working Papers of the African Governance and Development Institute. 19/022, African Governance and Development Institute..
    5. Efobi, Uchenna & Nnadi, Matthias, 2015. "Foreign Aid, IFRS Adoption and Foreign Direct Investment," EconStor Preprints 114568, ZBW - Leibniz Information Centre for Economics.
    6. Asongu, Simplice A & Nwachukwu, Jacinta C., 2015. "Foreign aid instability and bundled governance dynamics in Africa," MPRA Paper 71783, University Library of Munich, Germany.
    7. Simplice Asongu, 2014. "A brief clarification to the questionable economics of foreign aid for inclusive human development," Working Papers of the African Governance and Development Institute. 14/028, African Governance and Development Institute..
    8. EFOBI Uchenna & NNADI Matthias, 2015. "How Does Foreign Aid Affect the Relationship between IFRS Adoption and Foreign Direct Investment?," Working Papers of the African Governance and Development Institute. 15/014, African Governance and Development Institute..
    9. Simplice A. Asongu & Joseph I. Uduji & Elda N. Okolo-Obasi, 2019. "Foreign aid volatility and lifelong learning," Research Africa Network Working Papers 19/086, Research Africa Network (RAN).
    10. Uchenna R. Efobi & Matthias Nnadi, 2015. "How Does Foreign Aid Affect the Relationship between IFRS Adoption and Foreign Direct Investment?," Research Africa Network Working Papers 15/014, Research Africa Network (RAN).

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    More about this item

    Keywords

    Africa; Development; Foreign aid; Political economy;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • B20 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - General

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