IDEAS home Printed from https://ideas.repec.org/a/sae/emeeco/v18y2026i1p71-87.html

Foreign Aid and Financial Development on Poverty in Africa: New Perspectives from the MMQR Approach

Author

Listed:
  • Mohamed Saney Dalmar
  • Suryati Ishak
  • Hanny Zurina Hamzah
  • Saifuzzaman Ibrahim

Abstract

This study examines how financial development influences the impact of foreign aid on poverty reduction across 43 African countries between 2000 and 2019. Given the uneven distribution of the data, the analysis utilizes the innovative Method of Moments Quantile Regression (MMQR) technique. The results indicate that foreign aid has a positive impact on poverty in Africa. Importantly, financial development also has a positive influence on poverty. However, the results demonstrate a negative interaction effect, which implies that the combination of aid and financial development is associated with poverty reduction. Future research can improve on the findings from this study by addressing limitations in data disaggregation and cross-sectional coverage, as well as by investigating other methodological techniques and transmission mechanisms. This research contributes to the existing literature by exploring the moderating role of financial development in the aid-poverty relationship, using a multidimensional poverty measure. It also applies the advanced MMQR technique to offer a more in-depth analysis across the poverty distribution. JEL Classification F35, O16, I32, C32

Suggested Citation

  • Mohamed Saney Dalmar & Suryati Ishak & Hanny Zurina Hamzah & Saifuzzaman Ibrahim, 2026. "Foreign Aid and Financial Development on Poverty in Africa: New Perspectives from the MMQR Approach," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 18(1), pages 71-87, January.
    • Handle: RePEc:sae:emeeco:v:18:y:2026:i:1:p:71-87
    DOI: 10.1177/09749101251365050
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/09749101251365050
    Download Restriction: no
    File URL: https://libkey.io/10.1177/09749101251365050?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. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
    2. Ozgur Kaya & Ilker Kaya & Lewell Gunter, 2013. "Foreign Aid and the Quest for Poverty Reduction: Is Aid to Agriculture Effective?," Journal of Agricultural Economics, Wiley Blackwell, vol. 64(3), pages 583-596, September.
    3. Arestis, Philip & Demetriades, Panicos O & Luintel, Kul B, 2001. "Financial Development and Economic Growth: The Role of Stock Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(1), pages 16-41, February.
    4. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    5. Machado, José A.F. & Santos Silva, J.M.C., 2019. "Quantiles via moments," Journal of Econometrics, Elsevier, vol. 213(1), pages 145-173.
    6. Basu, Kaushik, 2006. "Globalization, poverty, and inequality: What is the relationship? What can be done?," World Development, Elsevier, vol. 34(8), pages 1361-1373, August.
    7. Philip Arestis & Asena Caner, 2009. "Financial liberalization and the geography of poverty," Cambridge Journal of Regions, Economy and Society, Cambridge Political Economy Society, vol. 2(2), pages 229-244.
    8. Folorunsho M. Ajide & Tolulope T. Osinubi, 2022. "Foreign aid and entrepreneurship in Africa: the role of remittances and institutional quality," Economic Change and Restructuring, Springer, vol. 55(1), pages 193-224, February.
    9. Edmore Mahembe & Nicholas Mbaya Odhiambo, 2021. "Does foreign aid reduce poverty? A dynamic panel data analysis for sub-Saharan African countries," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(4), pages 875-893, December.
    10. Gwangeun Choi, 2021. "Individuals’ socioeconomic position, inequality perceptions, and redistributive preferences in OECD countries," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(2), pages 239-264, June.
    11. Jenny C. Aker & Isaac M. Mbiti, 2010. "Mobile Phones and Economic Development in Africa," Journal of Economic Perspectives, American Economic Association, vol. 24(3), pages 207-232, Summer.
    12. Simplice A. Asongu & Oasis Kodila-Tedika, 2018. "Institutions and Poverty: A Critical Comment Based on Evolving Currents and Debates," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 139(1), pages 99-117, August.
    13. Nathapornpan Piyaareekul Uttama, 2015. "Foreign Direct Investment and the Poverty Reduction Nexus in Southeast Asia," Economic Studies in Inequality, Social Exclusion, and Well-Being, in: Almas Heshmati & Esfandiar Maasoumi & Guanghua Wan (ed.), Poverty Reduction Policies and Practices in Developing Asia, edition 127, chapter 0, pages 281-298, Springer.
    14. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
    15. Abdul Rashid & Maurizio Intartaglia, 2017. "Financial development – does it lessen poverty?," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 44(1), pages 69-86, January.
    16. Ben Arimah, 2004. "Poverty Reduction and Human Development in Africa," Journal of Human Development and Capabilities, Taylor & Francis Journals, vol. 5(3), pages 399-415.
    17. Hossein Jalilian & Colin Kirkpatrick, 2005. "Does Financial Development Contribute to Poverty Reduction?," Journal of Development Studies, Taylor & Francis Journals, vol. 41(4), pages 636-656.
    18. Timothy Besley & Robin Burgess, 2003. "Halving Global Poverty," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 3-22, Summer.
    19. Crispen Karanda & Nuria Toledano, 2018. "Foreign aid versus support to social entrepreneurs: Reviewing the way of fighting poverty in Zimbabwe," Development Southern Africa, Taylor & Francis Journals, vol. 35(4), pages 480-496, July.
    20. Yao Hongxing & Olivier Joseph Abban & Alex Dankyi Boadi, 2021. "Foreign aid and economic growth: Do energy consumption, trade openness and CO2 emissions matter? A DSUR heterogeneous evidence from Africa’s trading blocs," PLOS ONE, Public Library of Science, vol. 16(6), pages 1-25, June.
    21. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
    22. Giuliano, Paola & Ruiz-Arranz, Marta, 2009. "Remittances, financial development, and growth," Journal of Development Economics, Elsevier, vol. 90(1), pages 144-152, September.
    23. Alberto Chong & Mark Gradstein & Cecilia Calderon, 2011. "Erratum to: Can foreign aid reduce income inequality and poverty?," Public Choice, Springer, vol. 147(3), pages 529-529, June.
    24. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
    25. 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.
    26. B. Mak Arvin & Francisco Barillas, 2002. "Foreign aid, poverty reduction, and democracy," Applied Economics, Taylor & Francis Journals, vol. 34(17), pages 2151-2156.
    27. Kathleen Beegle & Luc Christiaensen, 2019. "Accelerating Poverty Reduction in Africa [Accélérer la réduction de la pauvreté en Afrique]," World Bank Publications - Books, The World Bank Group, number 32354, April.
    28. Friday Osemenshan Anetor & Ebes Esho & Grietjie Verhoef & Christian Nsiah, 2020. "The impact of foreign direct investment, foreign aid and trade on poverty reduction: Evidence from Sub-Saharan African countries," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1737347-173, January.
    29. Jakob Haan & Regina Pleninger & Jan-Egbert Sturm, 2022. "Does Financial Development Reduce the Poverty Gap?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 161(1), pages 1-27, May.
    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. Edmore Mahembe & Nicholas Mbaya Odhiambo, 2021. "Does foreign aid reduce poverty? A dynamic panel data analysis for sub-Saharan African countries," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(4), pages 875-893, December.
    2. Sunny Kumar Singh & Chandan Kumar Jha, 2023. "Are financial development and financial stability complements or substitutes in poverty reduction?," The European Journal of Finance, Taylor & Francis Journals, vol. 29(17), pages 2001-2031, November.
    3. Nayab Akhtar & Abdul Rashid, 2024. "Financial development and sustainable development: A review of literature," Sustainable Development, John Wiley & Sons, Ltd., vol. 32(6), pages 7114-7139, December.
    4. Simplice Asongu, 2016. "Reinventing Foreign Aid For Inclusive And Sustainable Development: Kuznets, Piketty And The Great Policy Reversal," Journal of Economic Surveys, Wiley Blackwell, vol. 30(4), pages 736-755, September.
    5. James B. Ang, 2008. "A Survey Of Recent Developments In The Literature Of Finance And Growth," Journal of Economic Surveys, Wiley Blackwell, vol. 22(3), pages 536-576, July.
    6. Aliyu Mamman & Yusuf Alhaji Hashim, 2013. "Impact of private sector credit on the real sector of Nigeria," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 3(5), pages 105-116, May.
    7. Muhammad Shahbaz, 2013. "Financial Development, Economics Growth, Income Inequality Nexus: A Case Study of Pakistan," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 1(3), pages 24-47, March.
    8. Furqan Sikandar & Vasilii Erokhin & Hongshu Wang & Shafiqur Rehman & Anna Ivolga, 2021. "The Impact of Foreign Capital Inflows on Agriculture Development and Poverty Reduction: Panel Data Analysis for Developing Countries," Sustainability, MDPI, vol. 13(6), pages 1-22, March.
    9. Asongu, Simplice, 2014. "Reinventing foreign aid for inclusive and sustainable development: a survey," MPRA Paper 65300, University Library of Munich, Germany.
    10. Liu, Wan-Chun & Hsu, Chen-Min, 2006. "The role of financial development in economic growth: The experiences of Taiwan, Korea, and Japan," Journal of Asian Economics, Elsevier, vol. 17(4), pages 667-690, October.
    11. Tiwari, Aviral Kumar & Trinh, Hai Hong & Vo, Diem Thi Hong & Sharma, Gagan Deep, 2025. "How do economies decarbonize growth under finance-energy inequality? Global evidence," Energy Economics, Elsevier, vol. 142(C).
    12. Haukioja, Teemu & Hahl, Jarmo, 2001. "The Emergence of the New Economy, and its Challenge to Financial Intermediation and Banking," Discussion Papers 772, The Research Institute of the Finnish Economy.
    13. Kumar, Ronald Ravinesh, 2013. "Remittances and economic growth: A study of Guyana," Economic Systems, Elsevier, vol. 37(3), pages 462-472.
    14. Durusu-Ciftci, Dilek & Ispir, M. Serdar & Yetkiner, Hakan, 2017. "Financial development and economic growth: Some theory and more evidence," Journal of Policy Modeling, Elsevier, vol. 39(2), pages 290-306.
    15. Rodolfo Cermeño & María Roa García & Claudio González-Vega, 2012. "Financial Development and Volatility of Growth: Time Series Evidence for Mexico and USA," DEGIT Conference Papers c017_035, DEGIT, Dynamics, Economic Growth, and International Trade.
    16. Fernanda Cigainski Lisbinski & Heloisa Lee Burnquist, 2024. "Institutions and financial development: Comparative analysis of developed and developing economies," EconomiA, Emerald Group Publishing Limited, vol. 25(2), pages 347-376, May.
    17. Seven, Unal & Coskun, Yener, 2016. "Does financial development reduce income inequality and poverty? Evidence from emerging countries," Emerging Markets Review, Elsevier, vol. 26(C), pages 34-63.
    18. Rosa Capolupo, 2018. "Finance, Investment and Growth: Evidence for Italy," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 47(1), pages 145-186, February.
    19. Su-Yin Cheng & Han Hou, 2022. "Financial development, life insurance and growth: Evidence from 17 European countries," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 47(4), pages 835-860, October.
    20. Agapova, Anna & Vishwasrao, Sharmila, 2020. "Financial sector foreign aid and financial intermediation," International Review of Financial Analysis, Elsevier, vol. 72(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • 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

    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:sae:emeeco:v:18:y:2026:i:1:p:71-87. 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: SAGE Publications (email available below). General contact details of provider: http://www.emergingmarketsforum.org/ .

    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.