Foreign Aid and Poverty Reduction in West African Nations: Insights and the Need for Policy Re-Orientation

Abstract

Poverty, a deteriorating healthcare system and insufficient educational standards are among the major macroeconomic problems facing African countries. Foreign aid from Western countries to African countries has been hailed as one of the solutions to these problems. Thus, this study investigated the impact of foreign aid on poverty using a panel data set of 14 West African nations. Foreign aid was disaggregated according to the reason for which it was given while poverty was measured with three variables namely; poverty headcount, infant mortality, and literacy rate. Annual data was sourced from the WDI (2022), WGI (2022) and OECD (2022), scoped 2008-2020. Using a two-step system GMM, the study found that total aid insignificantly reduces poverty headcount in the presence of reduced corrupt practices. Furthermore, foreign aid allocated to health and education was found to lower infant mortality and improve literacy rates, respectively; however, these effects were only significant in the condition of reduced corrupt practices. The study thus concludes that foreign aid works better when corrupt practices are reduced, and it recommends that policymakers in west- African countries should consider corruption control policies so that aid allocation is properly managed to improve its impact on poverty headcount, infant mortality, and literacy rate.