Is Foreign Aid Beneficial for Sub-Saharan Africa? A Panel Data Analysis
Significant ambiguity surrounds the magnitude and sign of the effect of foreign aid on economic growth. Foreign aid can potentially augment scarce domestic capital to spur growth but foreign aid can also remove positive incentive to build wealth, stalling growth. This paper characterizes the effect of foreign aid on the growth of Sub-Saharan African countries after correcting endogeneity problems that plague the estimation. Foreign aid is found to be growth promoting given good governance and using fixed effects in a static panel framework. Data from twenty-one Sub-Saharan African countries spanning 1995-2003 was used in the estimation. The finding of a significant foreign aid-growth relationship is pertinent because it suggests that increased aid to Sub Saharan Africa is one way to achieve the UN’s Millennium goals. By lobbying for increased foreign aid, advocates are prescribing a necessary albeit insufficient medicine for Sub Saharan Africa’s economic problems.
|Date of creation:||2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (414) 918-3190
Fax: (414) 276-3349
Web page: http://www.aaea.orgEmail:
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David Dollar & Craig Burnside, 2000.
"Aid, Policies, and Growth,"
American Economic Review,
American Economic Association, vol. 90(4), pages 847-868, September.
- Robert Lensink & Howard White, 2000. "Aid allocation, poverty reduction and the Assessing Aid report," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 399-412.
- Jeffrey M Wooldridge, 2010.
"Econometric Analysis of Cross Section and Panel Data,"
MIT Press Books,
The MIT Press,
edition 2, volume 1, number 0262232588, June.
- Jeffrey M. Wooldridge, 2001. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262232197, June.
- David Roodman, 2007.
"The Anarchy of Numbers: Aid, Development, and Cross-Country Empirics,"
World Bank Economic Review,
World Bank Group, vol. 21(2), pages 255-277, May.
- David Roodman, 2004. "The Anarchy of Numbers: Aid, Development, and Cross-country Empirics," Development and Comp Systems 0412003, EconWPA.
- Richard Blundell & Steve Bond, 1999.
"GMM estimation with persistent panel data: an application to production functions,"
IFS Working Papers
W99/04, Institute for Fiscal Studies.
- Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
- Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
- Arellano, Cristina & Bulír, Ales & Lane, Timothy & Lipschitz, Leslie, 2009.
"The dynamic implications of foreign aid and its variability,"
Journal of Development Economics,
Elsevier, vol. 88(1), pages 87-102, January.
- Timothy D. Lane & Leslie Lipschitz & Cristina Arellano & Ales Bulir, 2005. "The Dynamic Implications of Foreign Aid and its Variability," IMF Working Papers 05/119, International Monetary Fund.
- Mankiw, N Gregory & Romer, David & Weil, David N, 1992.
"A Contribution to the Empirics of Economic Growth,"
The Quarterly Journal of Economics,
MIT Press, vol. 107(2), pages 407-37, May.
- Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
- Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1127-70, November.
- Muhammed Islam, 2005. "Regime changes, economic policies and the effect of aid on growth," Journal of Development Studies, Taylor & Francis Journals, vol. 41(8), pages 1467-1492.
- Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2004.
"On The Empirics of Foreign Aid and Growth,"
Royal Economic Society, vol. 114(496), pages F191-F216, 06.
- Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
- William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer.
- Eskander Alvi & Debasri Mukherjee & Elias Kedir Shukralla, 2008. "Aid, Policies, and Growth in Developing Countries: A New Look at the Empirics," Southern Economic Journal, Southern Economic Association, vol. 74(3), pages 693-706, January.
When requesting a correction, please mention this item's handle: RePEc:ags:aaea08:6356. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If references are entirely missing, you can add them using this form.