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Does aid enhance growth?

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  • Yahyaoui, Ismahen
  • Bouchoucha, Najeh

Abstract

In recent years, the volume of international aid has increased, from rich countries to poor countries. Despite the importance of this aid, developing countries have not even been able to catch up with emerging countries, contrary to the expectations of convergence theories. Thus, the purpose of this article is to examine the short and the long term impact of foreign aid on economic growth in the case of Tunisia. The paper opted to use a VECM model to examine the long-term relationship of foreign aid on growth. The data cover from the year 1980 to 2013 in the case of Tunisia. The results obtained through VECM model, three are statistically significant. The empirical results are showing that Official Developped Aid affects positively the Tunisian economic growth. On the other hand, there is a long-term relationship between the two variables. In addition, the effectiveness of aid in terms of economic growth is more important in the long term than in the short term.

Suggested Citation

  • Yahyaoui, Ismahen & Bouchoucha, Najeh, 2018. "Does aid enhance growth?," MPRA Paper 91093, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:91093
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    File URL: https://mpra.ub.uni-muenchen.de/91093/1/MPRA_paper_91093.pdf
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    References listed on IDEAS

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    1. Alesina, Alberto & Dollar, David, 2000. "Who Gives Foreign Aid to Whom and Why?," Journal of Economic Growth, Springer, vol. 5(1), pages 33-63, March.
    2. Arndt, Channing & Jones, Sam & Tarp, Finn, 2015. "Assessing Foreign Aid’s Long-Run Contribution to Growth and Development," World Development, Elsevier, vol. 69(C), pages 6-18.
    3. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
    4. Resnick, Danielle & Birner, Regina, 2005. "Does Good Governance Contribute to Pro-poor Growth?: A Conceptual Framework and Empirical Evidence from Cross-Country Studies," Proceedings of the German Development Economics Conference, Kiel 2005 5, Verein für Socialpolitik, Research Committee Development Economics.
    5. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September.
    6. William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer.
    7. Hoda Abd El Hamid Ali, 2013. "Foreign Aid and Economic Growth in Egypt: A Cointegration Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 743-751.
    8. Pahlaj Moolio & Somphyvatanak Kong, 2016. "Foreign Aid and Economic Growth: Panel Cointegration Analysis for Cambodia, Lao PDR, Myanmar, and Vietnam," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 2(4), pages 417-428, October.
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    Cited by:

    1. Ismahene Yahyaoui & Najeh Bouchoucha, 2020. "Foreign Aid-Growth Nexus in Africa: Do Institutions Matter?," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 11(4), pages 1663-1689, December.

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    More about this item

    Keywords

    economic growth; Official Developped Aid; effectiveness; long-term relationship; VECM;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid

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