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Development thresholds of foreign aid effectiveness in Africa

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  • Simplice A, Asongu

Abstract

Purpose – This paper examines whether initial levels in GDP growth, GDP per capita growth and inequality adjusted human development matter in the impact of aid on development. In substance its object is to assess if threshold development conditions are necessary for the effectiveness of foreign-aid in Africa. Design/methodology/approach – The panel quantile regression technique enables us to investigate if the relationship between development dynamics and development assistance differs throughout the distributions of development dynamics. Findings – Two main findings are established. (1) The effectiveness of aid in economic prosperity (at micro and macro levels) increases in positive magnitude across the distribution. This implies high-growth countries are more likely to benefit from development assistance (in terms of economic prosperity) than their low-growth counterparts. (2) Existing levels of human development do not affect the manner in which foreign-aid negatively affects human emancipation. Thus the negative incidence of aid on human emancipation is almost similar across the human development distribution. Practical implications – Two policy implications result. (1) Blanket policies on the aid-economic prosperity nexus are unlikely to succeed in Africa; thus policy measures should be contingent on prevailing levels of economic growth and tailored differently across high and low growth countries. (2) Common policies could be applied within the framework of the aid-human development nexus regardless of country-specific (existing) human emancipation levels. Originality/value – This paper contributes to existing literature on the effectiveness of foreign-aid by focusing on the distribution of the dependent variables (development dynamics). It is likely that high and low growth countries respond differently to development assistance.

Suggested Citation

  • Simplice A, Asongu, 2012. "Development thresholds of foreign aid effectiveness in Africa," MPRA Paper 38094, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:38094
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    References listed on IDEAS

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    Cited by:

    1. Simplice Asongu & Vanessa Tchamyou, 2015. "Foreign aid, education and lifelong learning in Africa," Working Papers 15/047, African Governance and Development Institute..
    2. Efobi, Uchenna & Nnadi, Matthias, 2015. "Foreign Aid, IFRS Adoption and Foreign Direct Investment," EconStor Preprints 114568, ZBW - German National Library of Economics.
    3. Asongu, Simplice A & Nwachukwu, Jacinta C., 2015. "Foreign aid instability and bundled governance dynamics in Africa," MPRA Paper 71783, University Library of Munich, Germany.
    4. Simplice Asongu, 2014. "A brief clarification to the questionable economics of foreign aid for inclusive human development," Working Papers 14/028, African Governance and Development Institute..
    5. Simplice Asongu & Jacinta C. Nwachukwu, 2015. "Foreign aid volatility and lifelong learning: demand-side empirics to a textual literature," Working Papers 15/016, African Governance and Development Institute..
    6. EFOBI Uchenna & NNADI Matthias, 2015. "How Does Foreign Aid Affect the Relationship between IFRS Adoption and Foreign Direct Investment?," Working Papers 15/014, African Governance and Development Institute..

    More about this item

    Keywords

    Foreign Aid; Political Economy; Development; Africa;

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • B20 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - General

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