Abstract
South Africa is classified as one of the wealthiest countries in Africa, yet half of its population lives below the poverty line and over a quarter of its labour force is unemployed. Foreign aid was one of the major sources of capital for the country. It poured in from many developed countries and it was very successful in promoting a stable society, especially during the first few years after apartheid ended in 1994. Thus, South Africa is a good case study for determining the relationship between and the effect of foreign aid on growth. The data on aid flow as a percentage of gross domestic product (GDP) in South Africa was only available from 1980, thus limiting the data from 1980 to 2009. Given the limitations in the data, a co-integration analysis of the autoregressive distributed lag (ARDL) was adopted, using the method of the conditional unrestricted error correction model (UECM), which accommodates small samples. The result shows that the relationship between aid and growth is negative both in the short and the long run.
Highlights
South Africa is classified as one of the richest countries in Africa, with a gross domestic product (GDP) per capita of almost double that of Egypt and about four times that of Ghana, as estimated in 2011 (CIA, 2012)
Since South Africa has been receiving foreign aid for a long time, and many of its population are still living in abject poverty, the question remains whether foreign aid has any impact on the per capita GDP of the country as one of the measures of economic growth
The specification of the model, which explains the relationship between foreign aid and per capita GDP growth for South Africa, is discussed
Summary
South Africa is classified as one of the richest countries in Africa, with a gross domestic product (GDP) per capita of almost double that of Egypt and about four times that of Ghana, as estimated in 2011 (CIA, 2012). The purpose of foreign aid is to reduce the problem of inequalities in global income. Has this goal been achieved, especially in the case of South Africa?. Since South Africa has been receiving foreign aid for a long time, and many of its population are still living in abject poverty, the question remains whether foreign aid has any impact on the per capita GDP of the country as one of the measures of economic growth. The objective of this study is, to determine the relationship between foreign aid and the growth rate of GDP per capita and to determine whether it is positive, negative or statistically significant. A further objective is to investigate if there is a long-run relationship between these variables and, to determine the effect of foreign aid on growth both in the short and the long run
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