Foreign Development Assistance and Macroeconomic Policy Stance: The Underlying Levers of Growth in Emerging SSA Countries

Abstract

The economic growth of emerging Sub-Saharan African countries is investigated in this study, with the aim of determining the relative impacts of foreign development assistance (FDA) and macroeconomic policies. The GMM and VECM models are respectively employed in estimating the long-run and short-run impacts. The short-run results indicate that FDA strongly complemented fiscal policy only, in facilitating economic growth within the period 1980–2019. The long-run results, on the other hand, show that FDA complemented both monetary and fiscal policies in driving growth. The results further reveal that exchange rate played a non-complementary role, and economic growth did not respond significantly to its own lag. Generally, the estimated impacts conform to theoretical expectations of the models. The results are also considered reliable for policy making. The possible policy measures emanating from the estimation results include sustenance of FDA inflow, reinforcement of monetary policy framework, maintenance of fiscal policy framework, enhancing efficiency of the exchange rate system, and allowing market forces to drive the economy.