The Impact of Foreign Aid on Economic Growth in Ethiopia

Abstract

This paper investigates the impact of foreign aid on investment and economic growth of Ethiopia for the period 1971-2010. The result indicates that foreign aid has a statistically significant positive impact on domestic investment, while aid’s positive impact on per capita GDP growth does not depend on any macroeconomic policy conditionality. Rather, aid effectiveness depends on the peculiar social, political and economic institutions of particular periods. Aid is effective during both socialist and democratic regimes. However, aid’s impact on growth was greater for socialist regimes.