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A Re-examination of Domestic Saving-Foreign Aid Relationship in the Context of Bangladesh

Author

Listed:
  • Razzaque, Abdur

    (Lecturer, Department of Economics, University of Dhaka)

  • Ahmed , Nazneen

    (Senior Research Fellow, Bangladesh Institute of Development Studies (BIDS))

Abstract

The empirical studies in the context of Bangladesh provide contradictory evidence regarding the relationship between domestic saving and foreign aid. The present article examines the domestic saving-foreign aid relationship using the cointegration and error-correction modelling strategies to tackle the problem of non-stationary data, which the earlier studies overlooked. Three different cointegration techniques have been used and in every case a valid long-run inverse relationship between saving and aid is observed. The short-run error-correction models have also confirmed the negative relationship between these two variables. The Granger Causality test identifies a long-run causal relationship running from foreign aid to saving while in the short-run a bi-directional causality is found. This paper finds that the negative relationship between saving and aid is quite ' robust' and not sensitive to the choice of variables in the saving function.

Suggested Citation

  • Razzaque, Abdur & Ahmed , Nazneen, 2000. "A Re-examination of Domestic Saving-Foreign Aid Relationship in the Context of Bangladesh," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 26(4), pages 1-37, December.
    • Handle: RePEc:ris:badest:0402
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    Citations

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    Cited by:

    1. Mushtaq H. Khan, 2013. "Aid and Governance in Vulnerable States: Bangladesh and Pakistan Since 1971," WIDER Working Paper Series wp-2013-122, World Institute for Development Economic Research (UNU-WIDER).
    2. Khan, Mushtaq H., 2013. "Aid and Governance in Vulnerable States: Bangladesh and Pakistan Since 1971," WIDER Working Paper Series 122, World Institute for Development Economic Research (UNU-WIDER).
    3. Mushtaq H. Khan, 2014. "Aid and Governance in Vulnerable States," The ANNALS of the American Academy of Political and Social Science, , vol. 656(1), pages 59-78, November.

    More about this item

    Keywords

    Foreign aid; Causality; Development studies; Variable coefficients; Critical values; Autocorrelation; Gross domestic product;
    All these keywords.

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines

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