Teach me to fish instead of giving me fish: Foreign development aid and employment in Africa

Abstract

This paper aims to verify the effect of Official Development Assistance (ODA) on employment in Africa, considering sectoral employment and sub-regional groupings. The data is collected for 37 African countries between the 1996 to 2019 periods. The methodology involves the fixed effect, random effect, the Feasible Generalised Least Square (FGLS), and the Driscoll/Kraay estimators. The results reveal that official development aid harms employment in Africa. Looking at sectoral employment, we found a positive effect of aid on agricultural employment, a negative effect on industrial employment, and a non-significant positive effect on service employment. The effect of aid on agricultural employment is significantly augmenting in East Africa, and that on industrial employment is negatively significant in East, North, and Southern Africa. On the other hand, service employment is negatively and positively significant in East Africa and North Africa, respectively. Given the heterogeneity of the results across different regions, employment policies should be elaborated based on the specificities of each region.