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Foreign aid and economic growth in Ethiopia

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  • Tadesse, Tasew

Abstract

Abstract The study has examined the impact of foreign aid on investment and economic growth in Ethiopia over the period 1970 to 2009 using multivariate cointegration analysis. The empirical result from the investment equation shows that aid has a significant positive impact on investment in the long run. On the other hand, volatility of aid by creating uncertainty in the flow of aid has a negative influence on domestic capital formation activity. Foreign aid is effective in enhancing growth. However, the aid-policy interaction term has produced a significant negative effect on growth implying that bad policies can constrain aid effectiveness. The growth equation further revealed that rainfall variability has a significant negative impact on economic growth as the economy. This study indicated also that the country has no problem of capacity constraint as to the flow of foreign aid.

Suggested Citation

  • Tadesse, Tasew, 2011. "Foreign aid and economic growth in Ethiopia," MPRA Paper 33953, University Library of Munich, Germany, revised 20 Sep 2011.
  • Handle: RePEc:pra:mprapa:33953
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    Cited by:

    1. Heng Hokmeng & Pahlaj Moolio, 2015. "The Impact of Foreign Aid on Economic Growth in Cambodia: A Co-integration Approach," KASBIT Business Journals, Khadim Ali Shah Bukhari Institute of Technology (KASBIT), vol. 8(1), pages 4-25, May.
    2. gebregergis, Cherkos Meaza, 2016. "Economic Analysis of the Impact of Development Aid : An Application of Error Correction Modelling (ECM) to Ethiopia," MPRA Paper 83562, University Library of Munich, Germany.

    More about this item

    Keywords

    foreign aid; policy; economic growth; cointegration; VECM; Ethiopia;

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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