Has International Aid Promoted Economic Growth in Africa?

Cai, Jinyang; Zheng, Zhijie; Hu, Ruoyu; Pray, Carl E.; Shao, Qianqian

doi:10.1111/1467-8268.12333

Cited by 17 publications

(14 citation statements)

References 37 publications

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“…Similarly, some researchers argue that foreign aid can contribute to economic growth, but only in countries with a good political environment (see Bhattarai, 2009; Burnside & Dollar, 2000; Collier & Dollar, 2002). Other researchers found that foreign aid has a positive impact on economic growth, depending on the level of democracy (Islam, 2003), the country's political stability (Cai et al, 2018), and financial liberalization (Ang, 2010).…”

Section: Literature Reviewmentioning

confidence: 99%

The long‐run relationship between ODA, growth and governance: An application of FMOLS and DOLS approaches

Yahyaoui

Bouchoucha

2021

African Development Review

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Despite having received a significant amount of foreign aid for several decades, Africa is among the poorest regions in the world. This study examines the relationship between foreign aid, economic growth and governance in the African region during the period 1996-2014 by fully applying both DOLS and FMOLS techniques. In the first stage of this study, we examine the foreign aid effect on economic growth. In the second stage, we assess the intermediary role of institutions in the relationship between foreign aid and economic growth in the African countries. It was found that foreign aid has a negative effect on economic growth in African countries in both FMOLS and DOLS models. However, empirical results indicate that foreign aid improves economic growth in the presence of good institutional quality only in the DOLS model.

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Section: Literature Reviewmentioning

confidence: 99%

The long‐run relationship between ODA, growth and governance: An application of FMOLS and DOLS approaches

Yahyaoui

Bouchoucha

2021

African Development Review

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“…Tait et al (2015) found that AID has a significant positive long‐run effect on economic growth for 25 SSA countries over the period 1970–2012. More recently, Cai et al (2018), Sothan (2018), and Jena and Sethi (2019) found that AID can promote economic growth in Africa. In contrast, another strand of studies suggested a negative or insignificant relationship between AID and economic growth (see, e.g., Adedokun, 2017; Liew et al, 2012; Mitra & Hossain, 2013; Rao et al, 2020; Sabra & Eltalla, 2016).…”

Section: Literature Reviewmentioning

confidence: 99%

“…Foreign direct investment (FDI), foreign aid (AID) and domestic investment (DI) have been promoted as major sources of economic growth in developing countries (Adams, 2009; Arazmuradov, 2012; Balasubramanyam et al, 1996; Borensztein et al, 1998; Ghazali, 2010; Makki & Somwaru, 2004; Murshed & Khanaum, 2014; Ullah et al, 2014; Boateng et al, 2017; Furuoka, 2017; Cai et al, 2018; Li & Tanna, 2018). FDI was shown to have a highly complementary impact on investment, leading to additional investment by host‐country investors, which is several times the FDI inflow (Agarwal & Khan, 2011; Adams, 2009; Ghazali, 2010).…”

Section: Introductionmentioning

confidence: 99%

The effects of foreign aid, foreign direct investment and domestic investment on economic growth in African countries: Nonlinearities and complementarities

Younsi

Bechtini

Khemili

2021

African Development Review

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This paper examines the relationship between foreign aid (AID), foreign direct investment (FDI) and domestic investment (DI) and its effects on economic growth in 41 African countries. Annual panel data from 1990 to 2016 are examined using fixed-effects (FE) and system-GMM estimators. We test the existence of nonlinearities and complementarities in the relationship between AID-FDI, AID-DI, FDI-DI, and AID-FDI-DI. Empirical results confirm the existence of a nonlinear relationship between AID, FDI, DI, and economic growth. Besides, the results show that AID and FDI have a significant positive complementing effect on economic growth. It is shown also that FDI complements DI, while the coupled effect of AID and DI remains weak in catalyzing growth. Moreover, the results indicate that the complementarity between AID-FDI-DI positively influence economic growth, revealing that AID and FDI work as a complement factor to DI and enhance its effectiveness in promoting economic growth. These insights have important policy implications. Policy-makers in African countries are well advised to implement concrete policy measures suitable for building on the growth momentum created by foreign capital inflows, like FDI, AID as well as remittance. countries to recipient countries, which include both grants and loans from bilateral and multilateral official agencies, are considered as important sources of funds for capital expenditures and could contribute to the immiserizing growth of developing countries (Tim et al., 2004). However, the interaction between AID, FDI, and DI is considered the topic to be studied in developing economies. While, FDI inflows to developing economies remains stable, growing to $706 billion, with significant differences among regions, Africa recorded the largest amount ($45.5 billion) of FDI flows in 2016 (UNCTAD, 2016). The rise in FDI was mainly due to the continuance of resource-seeking investments, and a more than doubling of FDI flows to South Africa (from $2.0 billion to $5.3 billion). Similarly, about AID, it is shown that official development assistance (ODA) receipts of developing countries increased significantly during the decade of the 2000s. However, based on AID recipient data, Africa recorded the highest ($49,954 million) of net ODA recipients in 2016, following by Asia with $43,516 million (World Bank, 2016). Against this background, net flows of ODA continue to be distributed more evenly across different developing countries than other official flows, such as FDI. This is true, despite the fact that donors' aid allocation is not only affected by country needs, but also by additional factors ranging from geopolitical considerations to historical and cultural ties, especially in the case of bilateral flows (Alesina & Dollar, 2000; Anderson, 2008). Though the literature is full of studies investigating the impacts of AID, FDI, and DI on economic growth, it is still inconclusive, with differences in empirical findings in terms of set of countries, data and estimation techniques. While there i...

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“…Therefore, panel unit root tests are used to examine whether our variables are stationary. The most common unit root tests in panel data include the Levin-Lin-Chu (LLC) test, the Harris-Tzavalis (HT) test, the Breitung test, and the Im-Pesaran-Shin (IPS) test (Cai et al, 2018). The first three approaches ignore the heterogeneity among provinces when compared with the IPS test (Im et al, 2003).…”

Section: Panel Unit Root Tests and Cointegration Testsmentioning

confidence: 99%

Rural financial development, spatial spillover, and poverty reduction: evidence from China

Zhu

Chen

Cai

et al. 2021

Economic Research-Ekonomska Istraživanja

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Rural financial development is deemed essential for eliminating poverty. In China, successive governments have initiated a series of financial development plans to reduce poverty since the launch of economic reform in the late 1970s. However, there is a rising concern about whether financial development can reduce poverty in China. This study uses a panel dataset of 30 provinces (out of 31) in mainland China from 1997 to 2015 to examine the effect of rural financial development on poverty reduction. We employ a spatial panel model to investigate whether rural financial development has a positive spatial spillover effect. Moreover, we use the instrumental variable method to address the possible bidirectional causal effect between rural financial development and poverty reduction. Our study confirms that rural financial development does reduce poverty and simultaneously widen the urban-rural income gap. We further find that rural financial development has a positive spatial spillover effect on poverty alleviation and that the conventional panel model (e.g., fixed effects method) may underestimate the effect of rural financial development, as it ignores the spatial spillover effect.

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Has International Aid Promoted Economic Growth in Africa?

Cited by 17 publications

References 37 publications

The long‐run relationship between ODA, growth and governance: An application of FMOLS and DOLS approaches

The long‐run relationship between ODA, growth and governance: An application of FMOLS and DOLS approaches

The effects of foreign aid, foreign direct investment and domestic investment on economic growth in African countries: Nonlinearities and complementarities

Rural financial development, spatial spillover, and poverty reduction: evidence from China

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