Abstract
<p><em>This article analyzes the relationship between external aid and economic growth in the ECOWAS region, with a focus on bilateral and multilateral aid effects. The key idea behind this analysis is an argument of Svensson</em><em> </em><em>(2000)</em><em> that multilateral aid is more effective than bilateral aid because of the high degree of altruism of bilateral donors. He therefore suggested a delegation of bilateral aid to multilateral institutions. To appreciate his suggestion, this analysis used panel data from the 16 ECOWAS countries from the period 1984 to 2014. The results of the estimates, based on the dynamic least squares estimator (DOLS), show a negative effect of foreign aid on economic growth. This negative effect on economic growth persists when the components of aid are introduced into the model. In addition, results highlight that governance is a channel through which foreign aid affect positively economic growth. In these conditions, bilateral aid is more effective on economic growth than multilateral aid. These results about foreign aid received by ECOWAS countries invalidates</em><em> </em><em>Svensson’s</em><em> </em><em>(</em><a title="Svensson, 2000 #5" href="#_ENREF_1"><em>2000</em></a><em>)</em><em> theory. Therefore, a delegation of bilateral aid to multilateral institutions is not relevant because bilateral aid contributes more to economic growth if governance is taken into account.</em></p>
Highlights
Foreign aid in economics theory is considered as an additional resource to domestic resources in order to finance economic growth
The effects of foreign aid on economic growth has been estimated through the economic growth model presented above
Empirical results based on a dynamic panel data approach indicate a negative correlation between foreign aid and economic growth, regardless of component of aid
Summary
Foreign aid in economics theory is considered as an additional resource to domestic resources in order to finance economic growth. As Chenery and Strout (1966) pointed out in their two-gap growth model, achievement of a growth objective depends on investments efficiency Taking these factors into account, many studies have examined the issue of foreign aid effectiveness in terms of contribution to economic growth in recipient countries. Given aid flows received and the relationship between aid and GDP per capita established by the scatter plots, and according to the ongoing debate in empirical literature on the issue, we questions the ability of foreign aid to promote economic growth in ECOWAS countries. To this main question we can add these subsidiary questions. As for Gyimah-Brempong et al (2012), they found that aid effect on economic growth in 77 developing countries is positive only if the level of aid was between 6.6 and 14.4% of GDP
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