Abstract
The study examines the impact of foreign aid on economic growth (EG) of 40 Sub-Saharan African countries classified according to their colonial history and the level of income. Domestic capital formation and labour participation served as control variables. For empirical analysis, annual data for the period 1982–2018 are used, and a structural model is estimated using the pooled mean group estimation approach. The results reveal that (1) bilateral foreign aids (bfa) strongly favour the Francophone better than the Anglophone as it exerts strong favourable effect on the former (2) Multilateral aid exerts strong unfavourable effect on the Anglophone but weak on the francophone (3) only bilateral aid is a significant positive determinant of EG in low income countries (LICs) and low middle income countries (LMICs) in the long-run and in upper middle income countries (UMICs) in the short-run. One percent increase in bfa increases EG by −1.829%, 18.95%, 7.998%, 40.19% and 187.2% in the Anglophone, francophone, LICs, LMICs, and UMICs, respectively. These suggest that to significantly increase output productivity in the regions more of bilateral aid is required. To encourage inflow of foreign aid, complementary gross fixed capital formation should be increased and labour productivity enhanced.
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