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Effect of Domestic Capital Formation and Foreign Assistance on Rate of Economic Growth


  • Potiowsky, Thomas

    () (Portland State University Economics - Liberal Arts & Sciences)

  • Qayum, Abdul

    () (Portland State University Economics - Liberal Arts & Sciences)


It is universally recognized that income growth of a country is closely related to its rate of capital formation and foreign loans and assistance. This note attempts an empirical verification of this accepted fact based on a simple econometric study of the relationship between the rate of growth of per capita income of 58 developing countries and the per capita gross fixed capital formation and the per capita development assistance from developed countries. The results show that the effect of capital formation is not as great as is generally believed. Marginal output capital ratio is about 16 percent. The more surprising result is that forcing assistance has very small effect on per capita income. The paper lists several plausible explanation for this negligible effect of foreign assistance.

Suggested Citation

  • Potiowsky, Thomas & Qayum, Abdul, 1992. "Effect of Domestic Capital Formation and Foreign Assistance on Rate of Economic Growth," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 45(2), pages 223-228.
  • Handle: RePEc:ris:ecoint:0462

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    Cited by:

    1. Anwer, Muhammad Sarfraz & Sampath, Rajan K., 1999. "Investment And Economic Growth," 1999 Annual Meeting, July 11-14, 1999, Fargo, ND 35713, Western Agricultural Economics Association.
    2. M.Yusuf Tashrifov, 2005. "Foreign Financial Aid, Government Policies and Economic Growth: Does the Policy Setting in Developing Countries Matter?," International and Development Economics Working Papers idec05-10, International and Development Economics.

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