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The Impact of Foreign Aid on Economic Growth in Cambodia: A Co-integration Approach

Author

Listed:
  • Heng Hokmeng

    (Pa��asastra University of Cambodia, Phnom Penh, Cambodia)

  • Pahlaj Moolio

    (Pa��asastra University of Cambodia, Phnom Penh, Cambodia)

Abstract

The purpose of foreign aid is to stimulate economic growth in aid-recipient countries; yet, literature review reveals mixed results: inconclusive or often controversial findings. By using time series annual data from 1991 to 2012, and applying Johansen�s multivariate co-integration test with vector error correction model (VECM) and the innovative accounting (variance decomposition and impulse response function analysis) techniques, this study aims to examine the long run and short run impact of foreign aid on Cambodia�s aid-dependent economy; two other variables such as inflation, and government consumption expenditure are also included in the model. The results of the model show that foreign aid has a significantly positive impact on economic growth in the long run in Cambodia. In addition, foreign aid also has an influence on inflation and may cause it to rise in the short run and in the long run. The model also confirms that foreign aid and inflation positively affect government expenditure in the long run.

Suggested Citation

  • Heng Hokmeng & Pahlaj Moolio, 2015. "The Impact of Foreign Aid on Economic Growth in Cambodia: A Co-integration Approach," KASBIT Business Journals (KBJ), Khadim Ali Shah Bukhari Institute of Technology (KASBIT), vol. 8(1), pages 4-25, May.
    • Handle: RePEc:ksb:journl:v:8:y:2015:i:1:p:4-25
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    File URL: http://kasbit.edu.pk/KBJVol8-1/chap4-25.pdf
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    References listed on IDEAS

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    1. Rajarshi Mitra, 2013. "Foreign Aid and Economic Growth: A Cointegration Test for Cambodia," Journal of Economics and Behavioral Studies, AMH International, vol. 5(2), pages 117-121.
    2. 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.
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