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Aid and growth in Sub-Saharan Africa: accounting for transmission mechanisms

Author

Listed:
  • Karuna Gomanee

    (Regent's Business College, London, UK)

  • Sourafel Girma

    (Business School, University of Nottingham, UK)

  • Oliver Morrissey

    (CREDIT, School of Economics, University of Nottingham, UK)

Abstract

This paper is a contribution to the literature on aid and growth. Despite an extensive empirical literature in this area, existing studies have not addressed directly the mechanisms via which aid should affect growth. We identify investment as the most significant transmission mechanism, and also consider effects through financing imports and government consumption spending. With the use of residual generated regressors, we achieve a measure of the total effect of aid on growth, accounting for the effect via investment. Pooled panel results for a sample of 25 Sub-Saharan African countries over the period 1970 to 1997 point to a significant positive effect of foreign aid on growth, ceteris paribus. On average, each one percentage point increase in the aid|GNP ratio contributes one-quarter of one percentage point to the growth rate. Africa's poor growth record should not therefore be attributed to aid ineffectiveness. Copyright © 2005 John Wiley & Sons, Ltd.

Suggested Citation

  • Karuna Gomanee & Sourafel Girma & Oliver Morrissey, 2005. "Aid and growth in Sub-Saharan Africa: accounting for transmission mechanisms," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(8), pages 1055-1075.
    • Handle: RePEc:wly:jintdv:v:17:y:2005:i:8:p:1055-1075
    DOI: 10.1002/jid.1259
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