The Heterogeneous Impact of Sectoral Foreign Aid Inflows on Sectoral Growth: SUR Evidence from Selected Sub-Saharan African and MENA Countries

Nadeem Abdulmalik Abdulrahman Aljonaid,Zhaoyong Zhang,Fengming Qin

doi:10.3390/jrfm15030107

Nadeem Abdulmalik Abdulrahman Aljonaid, Zhaoyong Zhang + Show 1 more

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https://doi.org/10.3390/jrfm15030107

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Abstract

A great deal of the foreign aid–growth literature finds that the net effect of aggregate aid on total growth appears to be insignificant. This study argues that this aid–growth nexus can be better explained by testing the variation responses for each of growth sectors to their corresponding allocated aid inflows. It aims to investigate the heterogeneous effects of sectorally allocated aid inflows on their corresponding growth sectors (industry, agriculture and services) using data from 37 Sub-Saharan African and MENA-recipient developing nations from 1996 to 2017. We constructed two measures; one is the (SAASG) Sectoral-Allocated-Aid-for Sectoral-Growth, which was used as a major measure in the first two econometric specifications, and another one was the revised Clemens early-impact aid categories measure, which was used as the secondary measure in the third specification. The seemingly unrelated regression framework (SUR) was employed as the basic estimation approach, while the GMM approach was used to check robustness. The empirical findings revealed clear systematic impacts associated with aid distributed to each sector of growth, which may explain why the net effect of overall aid on total growth appears to be insignificant. The findings show that allocated aid inflows have a strong positive impact on agricultural growth, helping boost overall growth, whereas aid allocated to the service and industrial growth sectors tends to minimize the net benefits of total aid on growth due to financial and institutional reasons. The success of the planned scaling-up of aid to recipient countries depends on the financial system, institutional quality policies, and the ability to design a way to maintain incentives in the MENA and SSA regions’ selected recipient countries to overcome structural bottlenecks of sectoral growth.

Highlights

Publisher’s Note: MDPI stays neutralIn 2019, inflows of official development assistance (ODA) to the world economies increased from US$4.27 billion to US$167.8 billion (WDI 2021)
We modelled a specification targeting the first concern of the study question, through which we regressed the levels of SGDPit k sectoral growth on its respective allocated aid SAiditk by using aid commitments and aid disbursements datasets to deal with the possibility of shifts in the donor–recipient relation between the commitment time and when the aid is disbursed (Ghimire et al 2013); this was employed to help answer our first concern of heterogeneity
37 Sub-Saharan African and Middle East and North Africa (MENA)-recipient developing nations classified as low-income, middle-income and upper-middle-income by the World Bank during a 22-year period from 1996 to 2017

Summary

Introduction

Publisher’s Note: MDPI stays neutralIn 2019, inflows of official development assistance (ODA) to the world economies increased from US$4.27 billion to US$167.8 billion (WDI 2021). Providing emerging countries and regions, such as Sub-Saharan Africa (SSA) and the Middle East and North Africa (MENA), with foreign aid inflows in a variety of forms and types, ranging from humanitarian emergency assistance to food aid, military, social and economic assistance, etc., has long been an increasing trend to help them rise out of poverty. With such increased aid inflows of various types and forms, SSA represents the greatest beneficiary, receiving. Past research at the aggregate level has failed to establish strong and compelling evidence of a positive or with regard to jurisdictional claims in published maps and institutional affiliations

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