Exploring the effect of ODA on poverty: insights from least developed countries

Abstract

PurposeThe purpose of this study is to examine the long run impact of official development assistance (ODA) on Poverty levels in a sample of 33 least developed countries (LDCs) from 1991 to 2018.Design/methodology/approachThis study employed second-generation panel econometric techniques like Westerlund (2007), Pedroni (2004) cointegration tests and the augmented mean group (Eberhardt and Bond, 2009); (Eberhardt and Teal, 2010) and fully modified ordinary least squares (Phillips and Hansen, 1990) estimations to ascertain the long-run nexus between the variables of interest.FindingsOur findings revealed that ODA has a significant and positive impact on poverty expansion in LDCs. This indicates that ODA perpetuates poverty in LDCs in the long run. While gross domestic product (GDP) per capita and trade openness significantly contributed to reducing poverty levels. Our findings have several policy implications.Originality/valueThis paper sheds light on a panel of LDCs on which research on the ODA–poverty nexus is sparse in prevailing literature. Although studies have documented the impact of single country episodes on LDCs, research on the panel of LDCs remains largely unexplored. This is surprising given the heightened economic and social issues faced by these cross-sections. Additionally, a sustained downturn in ODA flows to LDCs and the commitment to meet SDG Goal 1 underscore the need for comprehensive analysis on LDCs. Hence, our study aims to address the critical gap in the prevailing literature and contribute to the field.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-05-2024-0390