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Impact of Foreign Aid on Economic Growth in Ethiopia

Author

Listed:
  • Belay Asfaw Gebresilassie

    (Ministry of Agriculture)

  • Tibebu Legesse

    (Hawassa University)

  • Girma Gezimu Gebre

    (Hawassa University
    Ritsumeikan University)

Abstract

This paper aims to analyze the impact of foreign aid on economic growth in Ethiopia using time series data over the period 1974–2017. Autoregressive distributed lag approach to co-integration and error correction model was applied to investigate the long-run and short-run impact of foreign aid on economic growth. The model results revealed that foreign aid has a negative impact on economic growth in both the long run and short run. The negative and significant error correction term shows that the short-run disequilibrium adjusts to its long-run equilibrium by 84.6% each year. The paper suggested that more effort has to be made to improve the negative impact of foreign aid, mainly because of the existence of poor institutional arrangements that contribute the funds to unproductive sectors. The government has to ensure a close monitoring and consistent management strategies, which are used to avoid misallocation and mismanagement problems and has to ensure that foreign aid is linked to the productive sectors to optimize the benefits.

Suggested Citation

  • Belay Asfaw Gebresilassie & Tibebu Legesse & Girma Gezimu Gebre, 2024. "Impact of Foreign Aid on Economic Growth in Ethiopia," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(2), pages 5288-5306, June.
    • Handle: RePEc:spr:jknowl:v:15:y:2024:i:2:d:10.1007_s13132-023-01303-y
    DOI: 10.1007/s13132-023-01303-y
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