Impact Of Foreign Aid Research Articles

Attaining Sustainable Development Goals (SDGs): New Evidence on Foreign aid and the “Bundling” of Domestic Revenue Mobilization in Sub-Saharan Africa

With the global sustainable development goals, it has become imperative for developing countries, especially sub-Saharan African countries, to think inward on ways to increase domestically mobilized revenue. The recovery of the global economy within the last few years has increased foreign assistance inflow into African countries. However, the direction of its impact on domestic mobilized revenue is unclear. This study revisited the relationship between foreign aid and domestic mobilized revenues for 32 sub-Saharan African countries using a more recent and novel dataset on tax revenue. We employed instrumental fixed effect Quantile regression, a novel technique in aid and tax revenue literature. The study's findings show that the impact of foreign aid varies across tax revenue distribution. We found a negative and significant effect in countries with high tax effort. While the effect is insignificant in countries with low tax effort, sub-Saharan African countries, especially those with low tax revenue, need to use foreign aid to strengthen their tax administration and adopt modern tax revenue collection technologies. As a result, sub-Saharan African countries should request advanced countries or donors to provide technical support in tax revenue mobilization.

Does Foreign Aid Have an Expected Role in the Economic Growth of Bangladesh? An Analysis in ARDL Approach

Bangladesh, a lower-middle-income country in South Asia and expected to be a developing country by 2024, is one of the most densely populated countries in the world, with 166.30 million (WDI, 2021) people. Foreign Aid (FA) plays a vital role in the economic development of Bangladesh. Foreign Aid, loans, and grants generally, which we call Official Development Assistance (ODA) (in this study, we have used the term 'Foreign aid') have increased gradually over the years after the liberation of Bangladesh with the increase of per capita GDP. In our study, we have conducted a single country investigation on Bangladesh and examined the impact of Foreign Aid on the Economic growth of Bangladesh from 1971 to 2019. The ARDL bounds test methodology was applied in the study, followed by the unit root test and the bound test for cointegration. Several diagnostic tests were conducted to check the stability and reliability of the model. The obtained results revealed that Foreign Aid has a significant and positive impact on the Economic growth of Bangladesh in the long- and short-run. The coefficients of the variables of our study refer that a 1(one) unit increase in foreign Aid would intensify 0.24 units of Economic growth in Bangladesh. In line with Foreign Aid, Gross capital formation also has a significant positive impact on the country's economic development. On the contrary, trade openness has a negative but insignificant impact both in the short and long run. Besides, population growth negatively and significantly impacts economic growth in the long run. In this study, finally, we have recommended some policy implications for the Government of Bangladesh.

The dynamic effects of aid and taxes on government spending

This paper examines the impact of foreign aid and taxes on government spending for 67 developing countries during 1980–2013 using dynamic heterogeneous (panel) time-series techniques. We find that spending, aid and tax ratios comprise an equilibrium (cointegrated) relation. On average, the aid coefficients (and marginal impacts) are positive but smaller than the tax coefficients, indicating that in the long-run and short-run taxes have a stronger association with expenditures than aid. Central to this heterogeneous relationship is the political calculus between aid and tax—measured according to accountability and bureaucratic costs—whereby recipients offset the political costs of raising taxes against the political costs of receiving more aid. Once measures of political costs are incorporated into the analysis, we find the political costs of aid to be higher than those of tax, reinforcing the primary assertion that for spending, taxes are more important than aid. Countries with higher political costs of aid typically show no aid-spending relationship, while those with lower political costs of aid tend to show an aid-spending relationship. The findings are largely when replicated once we split total spending into capital and consumption spending.

Foreign aid as a catalyst for improving productive capabilities in recipients

AbstractThis article empirically investigates the impact of foreign aid on recipients' productive capabilities. Panel data consists of 86 countries covering the period 2003–2019. The novelty of this study is in linking aid to a new proxy for measuring productive capabilities—the economic complexity index. Because of its ability to predict future growth, economic complexity is valuable in gauging aid effectiveness. The findings show that foreign aid benefits the recipients' economic complexity, although the results are mixed when aid is disaggregated by sector and type at different income levels. Trade openness and foreign direct investment are additional factors affecting economic complexity.

Impact of income level and foreign aid on economic growth in Sub-Saharan Africa: the case of Anglophone and Francophone countries

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.

Rebuilding energy infrastructures and the manufacturing sector in post-conflict countries

Conflicts severely depress the manufacturing sector of affected countries and jeopardize its recovery once peace is re-established. Yet, I claim that donors' commitment to restore and develop infrastructures to generate, distribute, store and manage energy may boost an upswing of the manufacturing sector in post-conflict settings. This is because, first, as opposed to conventional developmental aid, post-conflict aid is proven to be unusually productive and unlikely to trigger the appreciation of the real exchange rate. Second, because restoring and enhancing energy infrastructures is expected to increase the return on investments in the manufacturing sector. To test my hypothesis, I resort to a cross-section time-series two-stage least squares multivariate analysis covering 45 post-conflict countries between 1970 and 2013. I find that donors' commitment to rebuild and enhance energy infrastructures in post-conflict countries has positive effects on the manufacturing sector of recipient countries both in the short and in the medium term. These findings contribute both to shed more light on the impact of foreign aid in fragile and post-conflict countries, and to the literature investigating the impact of electrification in developing economies.

How International Aid Significantly Influence Ghana’s Trade Balance

Purpose: The study's goal was to ascertain the impact of foreign aid on Ghana's trade balance, the impact of the country's exchange rate on trade balance, and the causal relationship between foreign aid and trade balance in Ghana. 
 Methodology: Based on vector autoregressive (VAR) methods, descriptive and econometric analysis of time series data from 1982 to 2012 were conducted for the study. The existence of a link between foreign assistance and trade balance was examined using cointegration and causality tests. To ascertain how quickly economic equilibrium will shift from the short run to the long run, the Vector Error Correction Model (VECM) was used.
 Findings: The analysis found that the exchange rate has a favorable impact on Ghana's trade balance and that foreign aid has a negative impact on it. The study also showed a long-term connection between trade balance, exchange rate, and foreign aid as well as a bidirectional causation between foreign aid and Ghana's trade balance. According to the test for VECM, the transition from short-run to long-run equilibrium happened more quickly, at 1.43 or 143 percent.
 Recommendation: The study recommended the Republic of Ghana to undertake an import substitution program in order to decrease the volume of imports that have been contributing to the long-term trade imbalance. Instead of depending on unreliable foreign aid, export promotion policy should be a priority in order to generate sufficient foreign revenues. To accomplish these goals, the Ghanaian government should be intelligently prepared to remove all trade restrictions that Ghanaian exporters faced on the international market.

IMPACT OF FOREIGN AID ON ECONOMIC GROWTH IN KENYA 2006-2020

Purpose: The objective of this study was to examine the impact of foreign aid on economic growth in Kenya.
 Methodology: The study used a descriptive research technique and a time series approach to track economic growth in Kenya for 41 years, from the year 1980 to 2020. The study also adopted a census survey to collect secondary data by use of a secondary time series data template from the World Bank and KNBS databases in Kenya for the period 1980 to 2020. The collected data was edited, coded and analyzed using statistical package for social sciences (SPSS).
 Findings: The results of the study revealed that ODA, emergency & food aid, debt forgiveness and technical cooperation had a positive and significant relationship with economic growth(GDP). In addition, ODA, emergency & food aid and debt forgiveness have a positive and significant impact on economic growth. However, technical cooperation had a negative and no significant impact on economic growth in Kenya
 Unique Contribution to Theory, Practice and Policy: The study recommended that financial policymakers should come up with better strategies on the management of the foreign aid funds so as to ensure they are efficiently utilized. Financial policy makers should also consider foreign donors who can offer debt forgiveness aid since it will help Kenya in managing and reducing its debts.

Evaluating the impacts of foreign aid on low-income countries in Sub-Saharan Africa

Foreign aid comprises of a provision of financial resources or commodities such as food parcels or technical advice and training. The most prevalent type of foreign aid, particularly in developing countries, is Official Development Assistance (ODA) that strives to promote development and combat poverty. In Sub-Saharan Africa, there is a significant dependency on foreign aid which prompts the question; Is foreign aid completely necessary in developing African countries? With a high reliance on foreign aid the focus tends to shift from developing into self-sufficient economies and combating poverty to being dependent states. The paper explores the impact of foreign aid on the development in Sub-Saharan Africa. Because low-income countries are significantly reliant on aid, the study took a qualitative approach using the case study method featuring case studies from Kenya, Togo, and Zimbabwe. From the literature of the study, it is evident that the three countries had become dependent on foreign Aid. Conclusions drawn from the study show that foreign has become a recipe for dependency syndrome. Based on the findings from the literature, there is a need for private investments.

Foreign Aid and Dutch Disease: The Case of Vietnam

Abstract This study examines whether foreign aid from 1986 to 2019 caused the Dutch disease effect in Vietnam using a VAR model and Granger causality test. In this context, “Dutch disease” refers to the weakening of manufacturing processes as a consequence of the appreciation of a local currency due to capital inflow. Since foreign aid is considered a type of capital inflow, it is among the reasons for the appreciation of a local currency, which may offset the impact of foreign aid on economic growth. Although Vietnam experienced rapid economic growth, along with a large amount of foreign aid and appreciation in the real exchange rate, after Doi Moi (economic reform) in 1986, few studies have yet been conducted. The estimation results show that foreign aid does not cause an appreciation of the local currency in Vietnam. Based on this result, the Dutch disease did not occur due to foreign aid in Vietnam. JEL classification numbers: F35, O53. Keywords: Foreign Aid, Dutch Disease, Vietnam.

Does foreign aid reduce the country's risk of OFDI? The Chinese experience

AbstractUsing a sample of 124 countries assisted by China from 2000 to 2019, this paper examines the impact of foreign aid on outward foreign direct investment (OFDI) and the mitigation mechanism of risk. The research finds that, first, foreign aid can significantly reduce the country risk of recipient countries, especially political risk and financial risk, and thus play a role in promoting the inflow of OFDI of donor countries, and there is a lagged effect of this role; Second, foreign aid from other countries has a negative impact on China's OFDI to recipient countries, indicating that foreign aid is nonaltruistic and exclusive; Third, the mitigation effect of foreign aid on country risk is achieved through five channels: compensation effect, synergistic effect, pioneer effect, assimilation effect, and redistribution effects.

The Impact of Foreign Aid on Income Inequality: Evidence from Developing Countries. Application of the FMOLS Approach

The present study aims to evaluate the impact of foreign assistance on income inequality of selected developing economies. Panel co-integration technique is applied for the purpose of estimation. After confirming the pre-conditions for cointegration, we have applied the Fully Modified-OLS method to estimate the association between foreign aid and income inequality. Controlling for other variables, we find a positive and significant association between foreign aid and inequality. The empirical results are robust concerning the sub-samples of developing economies selected according to the income classification of the World Bank. The empirical results are also robust concerning the alternative measure of income inequality.

The Impact of Foreign Aid on Regimes Survival Egypt as a Case-study

The Impact of Foreign Aid on Regimes Survival Egypt as a Case-study

The Impact of Foreign Aid on Economic Growth in Africa: Empirical Evidence from Low Income Countries

This article aims to shed some insights into the ongoing debate on the aid-growth nexus by examining whether sources of aid matter in explaining aid effectiveness. In doing so, we consider three main proxies for bilateral aid based on three sources of aid such as Total Aid (TA); Traditional Donors aid (TDA) and Non-Traditional Donors aid (NTDA) as independent variables in a dynamic panel growth model within a system GMM framework. The study uses a panel dataset from 25 Low-Income Countries (LICs) in Africa over the period 2000–2017. The main findings show that the impact of aid on economic growth appears to be negative and significant for TA and TDA proxies, while it is positive but insignificant when the aid proxy is NTDA. A relatively larger share of TA and TDA disbursement away from the direct growth-enhancing productive sectors towards the unproductive sectors seems to have contributed to their strong negative impact on growth. The key policy implication is that governments in LICs in Africa and donors should work in collaboration to design effective ways to ensure that TDA should target the direct growth-enhancing sectors.

Foreign Aid and Economic Growth in South Asian Countries

This study employs panel data from 2000 to 2019 to examine and analyze the impact of foreign aid on growth in six South Asian nations, which are Bangladesh, Bhutan, India, Nepal, Pakistan, and Sri Lanka. The motivation of this study is to furnish empirical support for resolving the ongoing discourse on the relationship between foreign aid and economic growth. To this end, the article employs three panel regression models: pooled ordinary least-squares, random effect, and fixed effect, and estimates them using White cross-sectional standard errors and covariance. The empirical results reveal that foreign aid and population have a negative and considerable impact on Asian countries’ economic progress; whereas, gross capital formation has positive and significant effects. The empirical results of this study have important implications for both donors and aid recipient countries. It suggests that to get positive influence from aid, the recipient countries should enhance the quality of governance on the other side; the donor should provide a huge amount of aid for reforming the institutions’ quality and capacity building to developing countries. Furthermore, these countries should prefer to receive a grant as aid rather than a loan to reduce the debt burden. Government should develop the appropriate policies that help to increase government revenue and reduce the unnecessary current expenditure. To increase government revenue, the tax base should be regulated rather than being reliant on foreign loans. Also, advised channeling remittance into the productive sector and reducing the trade deficit by substituting imports through attracting foreign direct investment.

Impact of foreign aid on the ecological sustainability of sub-Saharan African countries

It remains an open question whether official development assistance (ODA) has really effectively contributed to sub-Saharan Africa (SSA) countries' sustainability. In this work, the ecological footprint model was used to quantitatively study the ecological sustainability of SSA countries. The non-linear dynamic impact of ODA to the SSA ecological deficit was investigated by the proposed dynamic threshold panel model from the perspective of the national governance system and governance capabilities of the recipient countries (SSA). At the same time, in order to further test the direct effects of ODA, an impulse response function was developed to study the impact model of immediate changes in ODA on the economic development and renewable energy development of recipient countries. The results show that the ODA effect of countries with good national governance systems and governance capabilities is much better than that of countries with poor national governance systems and governance capabilities. SSA countries do not have the awareness of independent development of renewable energy, but their economic development needs the help of renewable energy. SSA countries should strengthen their own national governance capabilities and governance system construction, and develop new energy-economic policies based on its own conditions instead of relying on international aid based on outdated thinking.

Impact of Foreign Aid on Economic Growth in the West African Monetary Zone using Non-linear Autoregressive Distributed Lag

This study analyses the pattern of asymmetric relationship between foreign aid and economic growth in five aid receiving countries in WAMZ using the Non-linear Autoregressive Distributed Lagged (NARDL) for the period, 1985 to 2018. Results from the NARDL estimation shows the presence of asymmetric long-run relationships. Increase in the flow of multilateral aid positively impact real per capita Gross Domestic Product (GDP) of the WAMZ at the coefficient estimate of 2.13 while decrease in multilateral shows positive but lower coefficient estimate of 1.74. Similarly, increase in the flow of bilateral aid positively impacts real per capita GDP but at a statistically insignificant coefficient value of 0.06, and interestingly, decrease in the flow of bilateral aid positively impacts real per capita GDP of the WAMZ at the coefficient estimate of 0.24. The results provide evidence that, in the long-run, increase in the flow of multilateral aid enhances the economic growth of the WAMZ while increase in bilateral aid was ineffective on growth. The granger causality estimation shows evidence of unidirectional causality running from multilateral aid to real per capita GDP, from bilateral aid to real GPD per capita and from bilateral aid to multilateral aid. The policy implication of these findings suggests that multilateral and bilateral aid inflows are useful for economic growth in the WAMZ. Overall, we conclude that multilateral aid is a much more fruitful channel through which countries within the WAMZ can stimulate economic growth in the long run. Therefore, bilateral donors should channel their assistance through multilateral organisations such as the IMF and the World Bank as multilateral aid is a more effective conduit through which foreign aid can boost the economic growth of the WAMZ. Keywords: Bilateral aid, Economic growth, multilateral aid, Population growth rate, West Africa monetary zone DOI: 10.7176/JESD/13-8-04 Publication date: April 30 th 2022

Does Corruption Invade the Effectiveness of Foreign Aid on Income Inequality in Developing Economies?

Foreign aid is critical for developing economies to meet their developmental objectives. Income disparity is a major problem that can be addressed with foreign resources; however unscrupulous behaviors such as misappropriation of funds for personal gain might diminish the effectiveness of foreign aid. This paper analyses the influence of foreign aid (ODA) on income inequality for a panel of 62 developing nations, including regional and income categories by using the Generalized Method of Moments (GMM) on model, with two specifications. The results have shown a negative impact of foreign aid on income inequality in developing economies overall and in regional and income groups of economies except Sub-Saharan Africa (SSA) particularly in the first specification where corruption has not been included in the model. In the second specification where corruption has been included in the model, the corruption has shown boosting impact on income inequality in developing economies as well as in all the regional and income groups of the economies. However, the effect of ODA on income inequality has become insignificant in developing economies but positive in all groups except SSA. It explains that corruption leads to foreign aid ineffectiveness in developing economies. In the control variables, FDI has a diminishing effect on income inequality in the panel of developing economies as well regional and income groups of the economies. It is proposed that to reap the benefits of foreign aid in developing economies, corruption is necessary to be eliminated.

Aid and Local Growth in Malawi

We study the local impact of foreign aid allocated to districts and constituencies in Malawi over the period 1999–2013 using a highly detailed new aid database that includes annual disbursements at each project location. First, we show using household panel surveys that growth in light density is a good proxy for growth in per capita consumption. Second, we introduce a new dataset that permits a novel instrumental variables strategy. We find a consistent and quantitatively significant relationship between aid and growth. Constituency-level regressions point to a larger effect than at district level, suggesting that aid is associated with some relocation of activity across space but not enough to make the net effect zero. The effect on growth is at its highest immediately after its disbursement, and falls to close to zero in subsequent years, implying that foreign aid has a level effect on incomes but does not stimulate sustained growth. Aid delivered as a grant is positively related with growth, while that given as a loan is not.

Quality of governance and corporate real investment: Assessing the impact of foreign aid

AbstractDeveloping economies are the main recipients of foreign aid. Nonetheless, such countries must face trade‐offs regarding poor governance due to the inflow of foreign aid because aid hampers governance situations. Given that, the current study aims to examine the role of country governance in defining corporate investment decisions and to ascertain how this effect varies across those countries that receive substantial amounts of foreign aid. To test the hypotheses, we collect the financial information of non‐financial sector enterprises from seven economies and apply the generalized method of moments and two‐stage least square models. The statistical results reveal that governance has a positive influence on corporate investment choices. This positive effect is consistent across individual effects of foreign aid. However, foreign aid systematically deteriorates the governance quality of the host country, referring to donor agencies’ unnecessary interruption of the host country's institutional proceedings. This factor reduces institutional efficiency, which further deteriorates corporate investment. Our empirical analysis suggests that all the countries analysed should focus on better governance situations to promote industrial growth. Policymakers from these economies should ensure the effectiveness of foreign aid and introduce better governance practices to expediate industrial growth.HIGHLIGHTS Country level governance has a positive and significant impact on CI decisions. Foreign aid affects CI decisions positively. Foreign aid deteriorates the host country's governance quality. The interaction effect of country governance and foreign aid on CI is negative.