Conditional Effect of Foreign Aid on Production Efficiency in Developing Countries

Ruhaida Saidon

doi:10.52962/ipjaf.2020.4.1.89

Abstract

This study analyzes the conditional effect of foreign aid on production efficiency in selected 80 developing countries during the period of 2005-2017. This study involves parametric and non-parametric data analysis approach. The DEA (non-parametric) was used to get the production efficiency scores, while a panel Tobit regression analysis had conducted to measure the conditionality effect of foreign aid on the production efficiency. The results indicated that the conditional effect of foreign aid has a positive significant influence on production efficiency of developing countries during the period of study. This finding implies the positive impact foreign aid on production efficiency depends on the conditional effect of foreign aid.

Highlights

Sustainable Development Goals 2030 (SDGs 2030) has targeted Sustainable consumption and production in Goal 12
This finding supported by Hall and Jones (1999) when they indicate that differences between countries in capital accumulation, productivity, and output per worker attributed to differences in “social infrastructure,” where they defined it as “the institutions and government policies that determine the effectiveness of foreign aid on production efficiency
This paper examined the conditional effect of foreign aid on production efficiency production of 80 aid recipient countries during the period 2005-2017

Summary

INTRODUCTION

Sustainable Development Goals 2030 (SDGs 2030) has targeted Sustainable consumption and production in Goal 12. Production efficiency is important for the aid recipient countries such as where its technological progress is slow. Chen and Singh (2014) argued that foreign aid failed to increase production efficiency if it is being used unproductively such as unnecessary government expenditure, rent-seeking, corruption and excessive capital output. This finding supported by Hall and Jones (1999) when they indicate that differences between countries in capital accumulation, productivity, and output per worker attributed to differences in “social infrastructure,” where they defined it as “the institutions and government policies that determine the effectiveness of foreign aid on production efficiency. This study will investigate this conditional effect of sectoral allocation foreign aid on production efficiency

LITERATURE REVIEW

METHODOLOGY AND DATA

Model Specification

CONCLUSION