Political regimes and foreign aid effectiveness in Ghana

Abstract

Purpose This paper has examined the effectiveness of foreign aid on Ghanaian economy under different political regimes. Design/methodology/approach Using vector error correction and co-integration models on the annual data set over a period of 35 years, the authors demonstrate that foreign aid has had varied impacts on economic growth depending on the political ideology of the government in power. Findings With capitalist political philosophy, foreign aid improves private sector growth through infrastructural development. On the other hand, a government with socialist philosophy applies most of its foreign aid in direct social interventions with the view of improving human capital. Thus, each political party is likely to seek foreign aid/grant that will support its political agenda. Overall, the results show that foreign aid has a positive impact on the growth of the Ghanaian economy when there is good macroeconomic environment. Practical implications This implies that the country experiences economic growth when there are sound economic policies to apply foreign aid. Originality/value The practical implication of the findings of this paper is that donor countries and agencies should consider the philosophy of the government in power while granting aid to recipient countries, especially in Africa. The results are robust to different proxies and models.

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

“…It intensifies private sector growth through infrastructural development with capitalist political philosophy. A government with socialist philosophy utilizes most of its FA for social interventions directly with the view of enlightening human capital (Tawiah et al, 2019). FA flows play a positive influence on economic growth for upper-middleincome countries.…”