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The Relationship Between Economic Growth and Foreign Aid: The Case of Afghanistan

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  • Muhammad Akbar Farahmand

    (Istanbul University, Institute of Social Sciences, Lecturer at Mawlana Jalaluddin Mohammad Balkhi University, Afghanistan)

Abstract

One of the main goals of foreign aid is to contribute to underdeveloped and developing countries economic growth and accelerate their growth. Foreign aid has been provided to Afghanistan by developed and developing countries for many years. Especially after 2001, the flow of foreign aid to Afghanistan started and continues until today. Despite billions of foreign aids provided, the country’s economy still faces lowncome levels, high poverty, and unemployment rates. In this study, the relationship between official development assistance and economic growth was analyzed using the time series method for Afghanistan between 1986 and 2018. For this purpose, ADF and Phillips-Perron (PP) unit root tests were performed to stabilize the series used. Then, after the lag length was determined, the Johansen cointegration test was conducted to test whether these two variables move together in the long run. As a result of the test, a cointegration relationship between variables has been proved. The Granger causality test based on the error correction model was conducted to investigate the causality relationship between these two variables. As a result, a one-way causality relationship from the received official development assistance to economic growth was determined. Finally, the results of variance decomposition support the result of the Granger causality test.

Suggested Citation

  • Muhammad Akbar Farahmand, 2021. "The Relationship Between Economic Growth and Foreign Aid: The Case of Afghanistan," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 8(2), pages 141-154, July.
    • Handle: RePEc:ist:iujepr:v:8:y:2021:i:2:p:141-154
    DOI: 10.26650/JEPR885246
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    References listed on IDEAS

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    1. Abdulnasser Hatemi-J & Manuchehr Irandoust, 2005. "Foreign Aid And Economic Growth: New Evidence From Panel Cointegration," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 30(1), pages 71-80, June.
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    Cited by:

    1. Akame, Afuge & Mavrotas, George, 2024. "The differential effects of foreign aid to sub-Saharan Africa," IOB Discussion Papers 2024.01, Universiteit Antwerpen, Institute of Development Policy (IOB).

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    More about this item

    Keywords

    Foreign aid; Economic growth; Cointegration analysis; Causality analysis JEL Classification : C51 ; C32 ; F35 ; O4;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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