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Foreign Aid, Domestic Savings and Economic Growth in Selected MENA Countries

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  • Mahmoud Mohammed Sabra
  • Abdel Hakeem Ahmad Eltalla

Abstract

Foreign aid can have either a positive or a negative impact on economic growth. The role of foreign aid in supporting growth by completing domestic savings has been a subject of substantial argument. In this study, we explore the role of foreign aid, trade openness, investment, domestic savings and economic growth in eight MENA countries (Morocco, Algeria, Egypt, Palestine, Syria, Jordan, Lebanon and Tunisia) for the period from 1977 to 2013. The estimation has been done using simultaneous equation model and dynamic panel data system analysis. A negative relationship is found between economic growth and foreign aid. The negative impact of foreign aid on economic growth could be due to presence of Dutch disease and bad policy environment. In addition, foreign aid seems to crowd out domestic savings rather than complementing it. The effects of trade openness and domestic investment on economic growth are significantly positive.

Suggested Citation

  • Mahmoud Mohammed Sabra & Abdel Hakeem Ahmad Eltalla, 2016. "Foreign Aid, Domestic Savings and Economic Growth in Selected MENA Countries," Business and Economic Research, Macrothink Institute, vol. 6(1), pages 352-362, June.
    • Handle: RePEc:mth:ber888:v:6:y:2016:i:1:p:352-362
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    References listed on IDEAS

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    1. Abdur Chowdhury & Paolo Garonna, 2007. "Effective Foreign Aid, Economic Integration and Subsidiarity: Lessons from Europe," ECE Discussion Papers Series 2007_2, UNECE.
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    3. Papanek, Gustav F, 1973. "Aid, Foreign Private Investment, Savings, and Growth in Less Developed Countries," Journal of Political Economy, University of Chicago Press, vol. 81(1), pages 120-130, Jan.-Feb..
    4. Yéro Baldé, 2011. "The impact of Remittances and Foreign Aid on Savings/Investment in Sub-Saharan Africa," Post-Print hal-00785220, HAL.
    5. Burke, Paul J. & Ahmadi-Esfahani, Fredoun Z., 2006. "Aid and growth: A study of South East Asia," Journal of Asian Economics, Elsevier, vol. 17(2), pages 350-362, April.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Simplice A. Asongu & Hillary C. Ezeaku, 2020. "Aid Grants vs. Technical Cooperation Grants: Implications for Inclusive Growth in Sub-Saharan Africa, 1984-2018," Research Africa Network Working Papers 20/091, Research Africa Network (RAN).
    2. Mahmoud M. SABRA, 2021. "FDI and ODA effects on recipient countries imports: Evidence from selected MENA countries," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(628), A), pages 101-114, Autumn.
    3. Moheddine Younsi & Marwa Bechtini & Hasna Khemili, 2021. "The effects of foreign aid, foreign direct investment and domestic investment on economic growth in African countries: Nonlinearities and complementarities," African Development Review, African Development Bank, vol. 33(1), pages 55-66, March.
    4. Hassan, Mai, 2017. "The impact of the shadow economy on aid and economic development nexus in Egypt," MPRA Paper 80990, University Library of Munich, Germany.
    5. Sayef Bakari, 2017. "The Impact Of Domestic Investment On Economic Growth: New Evidence From Malaysia," Journal of Smart Economic Growth, , vol. 2(2), pages 105-121, September.
    6. Hillary Chijindu Ezeaku & Ifeoma C. Nwakoby & Obiamaka P. Egbo & Josaphat U. J. Onwumere, 2019. "On the Dynamic Effect of Bilateral Concessional Debts on Living Standards in Sub-Saharan Africa," SAGE Open, , vol. 9(3), pages 21582440198, September.
    7. Artur Ribaj & Fitim Mexhuani, 2021. "The impact of savings on economic growth in a developing country (the case of Kosovo)," Journal of Innovation and Entrepreneurship, Springer, vol. 10(1), pages 1-13, December.

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    More about this item

    Keywords

    Foreign Aid; Domestic Savings; Economic Growth; Panel Data Models; MENA countries.;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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