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Aid fungibility and government spending in Africa: evidence from instrumental variable panel quantile regression

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  • Wisdom Kwabla Dewortor
  • Chin Man Chui

Abstract

This study investigates the impacts of foreign aid on government spending for 54 African aid-recipient countries with the distinction between on-budget and off-budget aid at the aggregate level. Applying instrumental variable panel quantile regression, the results indicate that, generally, the on-budget aid is partially fungible but the degree of fungibility decreases in the high-level government spending countries (higher quantile). On the other hand, off-budget aid is generally nonfungible though partial fungibility is significant in the low-level government spending countries (10th to 30th quantile). In addition, the impact of total aid is downward biased at various quantiles when the distinction between on-budget and off-budget aid is not made. Besides, the trade openness, the short-run shock on government spending and the quality of governance are also important determinants of government spending.

Suggested Citation

  • Wisdom Kwabla Dewortor & Chin Man Chui, 2020. "Aid fungibility and government spending in Africa: evidence from instrumental variable panel quantile regression," Applied Economics Letters, Taylor & Francis Journals, vol. 27(14), pages 1188-1193, July.
    • Handle: RePEc:taf:apeclt:v:27:y:2020:i:14:p:1188-1193
    DOI: 10.1080/13504851.2019.1676373
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    Cited by:

    1. Santos Bila & Mduduzi Biyase & Matias Farahane & Thomas Udimal, 2023. "Foreign Aid And Economic Growth In Sub-Saharan African Countries," Economics Working Papers edwrg-03-2023, College of Business and Economics, University of Johannesburg, South Africa, revised 2023.

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