Abstract
This study investigates whether foreign aid (AID) has a significant influence on economic growth in WAEMU’s (West African Economic and Monetary Union) countries. We use two (2) types of aid data: aggregate aid and disaggregate aid (aid in education, aid in agriculture, aid in trade policies and regulations and humanitarian aid) to run two (2) different regressions. Both the within-dimension and between-dimension estimators reveal that in the long run, the effect of AID on economic growth is heterogeneous across sectors and aid in agriculture, aid in trade policies and regulations as well as aid in education encourages economic growth.
Highlights
Debate concerning the relationship between foreign aid and economic growth in the receiving country is subject to different points of view
The famous work of [1] finds that aid has a positive impact on economic growth, but this can happen only in the economies in which aid is associated with good fiscal, monetary, and trade policies. [2] has shown that this positive aid-growth nexus exists even in countries with unfavorable policy environment; what matter more are the methodological approach and the control variables to be used since it suggests that when human capital and investment are used as control variables the positive effect does not exist
Foreign aid disbursement data are from the creditor reporting system (CRS) on the OECD website while the data on GDP growth rate and GDP are from the UNCTAD
Summary
Debate concerning the relationship between foreign aid and economic growth in the receiving country is subject to different points of view. [7] uses annual data from 1960 to 1997 for a sample of 71 aid-receiving developing countries to investigate the aidgrowth nexus and concludes that the effect of foreign aid on economic growth is positive, permanent, and statistically significant. The present study considers the heterogeneous nature of aid by disaggregating aid’s data into different sectors (aid in education, aid in agriculture, trade policies and regulations aid and humanitarian aid) because different types of aid may have different effects on growth. It provides new results on the long-run effect of the foreign aid on the economic growth using a large data set on WAEMU’s countries. The rest of the paper is structured as follows: Section 2 deals with the data and model; the empirical results are discussed in Section 3 whereas Section 4 concludes
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