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Foreign Aid And Economic Growth: New Evidence From Panel Cointegration

Author

Listed:
  • Abdulnasser Hatemi-J

    () (Department of Economics, University of Skovde)

  • Manuchehr Irandoust

    () (Department of Economics, University of Orebro)

Abstract

The relationship between foreign aid and economic growth is investigated for a panel of developing countries (Botswana, Ethiopia, India, Kenya, Sri-Lanka, and Tanzania) over the period 1974-1996. The results reveal that the variables contain a panel unit root and they cointegrate in a panel perspective. The long-run elasticities (close to one for most countries) show that foreign aid has a positive and significant effect on economic activity for each country in the sample. A policy implication which may be drawn from the study is that foreign capital flows can have a favorable effect on real income by supplementing domestic savings.

Suggested Citation

  • 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.
  • Handle: RePEc:jed:journl:v:30:y:2005:i:1:p:71-80
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    File URL: http://www.jed.or.kr/full-text/30-1/05_J679.PDF
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    References listed on IDEAS

    as
    1. Pallage, Stephane & Robe, Michel A, 2001. "Foreign Aid and the Business Cycle," Review of International Economics, Wiley Blackwell, vol. 9(4), pages 641-672, November.
    2. Easterly, William, 1999. "The ghost of financing gap: testing the growth model used in the international financial institutions," Journal of Development Economics, Elsevier, vol. 60(2), pages 423-438, December.
    3. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    4. Karlsson, Sune & Lothgren, Mickael, 2000. "On the power and interpretation of panel unit root tests," Economics Letters, Elsevier, vol. 66(3), pages 249-255, March.
    5. Abdulnasser Hatemi-J & Manuchehr Irandoust, 2004. "Is Pricing to Market Behavior a Long-Run Phenomenon? A Non-Stationary Panel Analysis," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 31(1), pages 55-67, March.
    6. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
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    Citations

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    Cited by:

    1. Ali, Sharafat & Ahmad, Najid, 2013. "A Time Series Analysis of Foreign Aid and Income Inequality in Pakistan," MPRA Paper 48877, University Library of Munich, Germany.
    2. repec:eee:rensus:v:81:y:2018:i:p2:p:1859-1867 is not listed on IDEAS
    3. 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.
    4. Eberechukwu Uneze, 2012. "Foreign Aid, Aid Uncertainty And Private Investment In West Africa: An Unobserved Country Effects Model," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 37(4), pages 101-123, December.

    More about this item

    Keywords

    Foreign Aid; Economic Growth; Panel Unit Root Tests; Panel Cointegration; Africa; Asia;

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • 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
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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