IDEAS home Printed from https://ideas.repec.org/a/ist/iujepr/v8y2021i2p141-154.html
   My bibliography  Save this article

The Relationship Between Economic Growth and Foreign Aid: The Case of Afghanistan

Author

Listed:
  • Muhammad Akbar Farahmand

    (Istanbul University, Institute of Social Sciences, Lecturer at Mawlana Jalaluddin Mohammad Balkhi University, Afghanistan)

Abstract

One of the main goals of foreign aid is to contribute to underdeveloped and developing countries economic growth and accelerate their growth. Foreign aid has been provided to Afghanistan by developed and developing countries for many years. Especially after 2001, the flow of foreign aid to Afghanistan started and continues until today. Despite billions of foreign aids provided, the country’s economy still faces lowncome levels, high poverty, and unemployment rates. In this study, the relationship between official development assistance and economic growth was analyzed using the time series method for Afghanistan between 1986 and 2018. For this purpose, ADF and Phillips-Perron (PP) unit root tests were performed to stabilize the series used. Then, after the lag length was determined, the Johansen cointegration test was conducted to test whether these two variables move together in the long run. As a result of the test, a cointegration relationship between variables has been proved. The Granger causality test based on the error correction model was conducted to investigate the causality relationship between these two variables. As a result, a one-way causality relationship from the received official development assistance to economic growth was determined. Finally, the results of variance decomposition support the result of the Granger causality test.

Suggested Citation

  • Muhammad Akbar Farahmand, 2021. "The Relationship Between Economic Growth and Foreign Aid: The Case of Afghanistan," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 8(2), pages 141-154, July.
    • Handle: RePEc:ist:iujepr:v:8:y:2021:i:2:p:141-154
    DOI: 10.26650/JEPR885246
    as

    Download full text from publisher

    File URL: https://cdn.istanbul.edu.tr/file/JTA6CLJ8T5/4E72A76D6FE24E7094AFC2A7C4738E3B
    Download Restriction: no
    File URL: https://iupress.istanbul.edu.tr/en/journal/jepr/article/the-relationship-between-economic-growth-and-foreign-aid-the-case-of-afghanistan
    Download Restriction: no
    File URL: https://libkey.io/10.26650/JEPR885246?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Ismail O. FASANYA & Adegbemi B.O ONAKOYA, 2012. "Does Foreign Aid Accelerate Economic Growth? An Empirical Analysis for Nigeria," International Journal of Economics and Financial Issues, Econjournals, vol. 2(4), pages 423-431.
    2. 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 120-130, Jan.-Feb..
    3. Georgios Karras, 2006. "Foreign aid and long-run economic growth: empirical evidence for a panel of developing countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(1), pages 15-28.
    4. World Bank, 2018. "World Development Report 2018 [Rapport sur le développement dans le monde 2018]," World Bank Publications - Books, The World Bank Group, number 28340, December.
    5. Abdulnasser Hatemi-J & Manuchehr Irandoust, 2005. "Foreign Aid And Economic Growth: New Evidence From Panel Cointegration," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 30(1), pages 71-80, June.
    6. Nasery, Jawid Ahmad, 2014. "The Economic Shock to Afghanistan Caused by Aid Reduction and Troops Withdrawal," IEE Working Papers 202, Ruhr University Bochum, Institute of Development Research and Development Policy (IEE).
    7. Levy, Victor, 1988. "Aid and growth in Sub-Saharan Africa: The recent experience," European Economic Review, Elsevier, vol. 32(9), pages 1777-1795, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. P. B. Eregha, 2013. "Aid Flows and Growth Diagnosis: Empirical Evidence for A Panel of ECOWAS Countries," Economics Bulletin, AccessEcon, vol. 33(4), pages 2627-2633.
    2. Muhammad Azam & Yi Feng, 2022. "Does foreign aid stimulate economic growth in developing countries? Further evidence in both aggregate and disaggregated samples," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(2), pages 533-556, April.
    3. Pahlaj Moolio & Somphyvatanak Kong, 2016. "Foreign Aid and Economic Growth: Panel Cointegration Analysis for Cambodia, Lao PDR, Myanmar, and Vietnam," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 2(4), pages 417-428, October.
    4. Geetilaxmi MOHAPATRA & A. K. GIRI & Madhu SEHRAWAT, 2016. "Foreign aid, macroeconomic policies and economic growth nexus in India: An ARDL bounds testing approach," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(609), W), pages 183-202, Winter.
    5. Innocent .U. Duru & Bartholomew .O.N. Okafor & Millicent Adanne Eze & Gabriel .O. Ebenyi, 2020. "Foreign Aid and Economic Growth: Empirical Evidence from Nigeria," Growth, Asian Online Journal Publishing Group, vol. 7(1), pages 35-50.
    6. Sethi, Narayan & Bhujabal, Padmaja & Das, Aurolipsa & Sucharita, Sanhita, 2019. "Foreign aid and growth nexus: Empirical evidence from India and Sri Lanka," Economic Analysis and Policy, Elsevier, vol. 64(C), pages 1-12.
    7. Philip Michael Kargbo, 2012. "Impact of Foreign Aid on Economic Growth in Sierra Leone: Empirical Analysis," WIDER Working Paper Series wp-2012-007, World Institute for Development Economic Research (UNU-WIDER).
    8. Kargbo, Philip Michael, 2012. "Impact of Foreign Aid on Economic Growth in Sierra Leone: Empirical Analysis," WIDER Working Paper Series 007, World Institute for Development Economic Research (UNU-WIDER).
    9. Sethi, Narayan & Bhujabal, Padmaja & Sahoo, Malayaranjan & Sucharita, Sanhita, 2019. "Does Foreign Aid Act as an Instrument of Economic Growth in India and Sri Lanka?," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 53(2), pages 3-19.
    10. Shagufta Sultana, "undated". "Does Foreign Aid Affect Economic Growth In Pakistan? A Disaggregate Analysis," Review of Socio - Economic Perspectives 201945, Reviewsep.
    11. Omenda Purity Awino & Urbanus Mutuku Kioko, 2022. "The Effect of Official Development Assistance Aid on Economic Growth and Domestic Savings in Kenya," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 12(4), pages 63-77.
    12. Geetilaxmi MOHAPATRA & A. K. GIRI & Madhu SEHRAWAT, 2016. "Foreign aid, macroeconomic policies and economic growth nexus in India: An ARDL bounds testing approach," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(609), W), pages 183-202, Winter.
    13. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
    14. Tadesse, Tasew, 2011. "Foreign aid and economic growth in Ethiopia," MPRA Paper 33953, University Library of Munich, Germany, revised 20 Sep 2011.
    15. Afolabi Tunde Ahmed & Imran Ur Rahman, 2020. "The Impact of FDI and Foreign Aid on the Economic Growth: Empirical Evidence from Sub-Saharan African Countries," International Journal of Science and Business, IJSAB International, vol. 4(6), pages 53-70.
    16. Ojiambo Elphas & Jacob Oduor & Mburu Tom & Wawire Nelson, 2015. "Working Paper 226 - Aid Unpredictability and Economic Growth in Kenya," Working Paper Series 2169, African Development Bank.
    17. Ismail O. FASANYA & Adegbemi B.O ONAKOYA, 2012. "Does Foreign Aid Accelerate Economic Growth? An Empirical Analysis for Nigeria," International Journal of Economics and Financial Issues, Econjournals, vol. 2(4), pages 423-431.
    18. Usman Ugboga Koku & Oduor Isaiah Otieno & Edward Kisiang’ani, 2022. "Theoretical Debate on the Development Aid in Africa," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 6(12), pages 520-528, December.
    19. Jinyang Cai & Zuting Zheng & Ruifa Hu & Carl E. Pray & Qianqian Shao, 2018. "Has International Aid Promoted Economic Growth in Africa?," African Development Review, African Development Bank, vol. 30(3), pages 239-251, September.
    20. Samuel Adams & Edem Kwame Mensah Klobodu & Richmond Odartey Lamptey, 2017. "The Effects of Capital Flows on Economic Growth in Senegal," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 11(2), pages 121-142, May.

    More about this item

    Keywords

    Foreign aid; Economic growth; Cointegration analysis; Causality analysis JEL Classification : C51 ; C32 ; F35 ; O4;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ist:iujepr:v:8:y:2021:i:2:p:141-154. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ertugrul YASAR (email available below). General contact details of provider: https://edirc.repec.org/data/ifisttr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.