The Impact of Official Development Assistance on the Economic Growth of the Solomon Islands

Abstract

The Solomon Islands is a least developed country in the Pacific Ocean. As a low-income country, its economic development has been significantly relied on official development assistance (ODA). According to the economic growth theory, ODA is a vital contributor to the economic development of a low-income economy. Nonetheless, the existing literature shows inconclusive empirical findings. This paper fills the research gap by scrutinizing the effect of ODA on the economic growth of the Solomon Islands. The autoregressive distributed lag (ARDL) model is adopted using the annual data from 1980 to 2019. The empirical findings from the ARDL model indicate the positive impact of ODA on economic growth, but with a marginal effect. A one percent increase in ODA raises 0.07 percent of per capita GDP. The Toda-Yamamoto approach of Granger causality analysis is performed for the robustness check. The finding from the Toda-Yamamoto method suggests that there is no causal relationship running from ODA toward the economic growth of the Solomon Islands.