IDEAS home Printed from https://ideas.repec.org/a/ukm/jlekon/v48y2014i1p63-73.html
   My bibliography  Save this article

Impact of Foreign Aid and Foreign Direct Investment on Economic Growth: Evidence from Sub-Saharan African Countries

Author

Listed:
  • Mohamed, Masoud Rashid

    (Sekolah Pengajian Siswazah Universiti Putra Malaysia 43400 Serdang, Selangor MALAYSIA)

  • Kaliappan, Shivee

    (Fakulti Ekonomi dan Pengurusan Universiti Putra Malaysia 43400 UPM Serdang, Selangor MALAYSIA)

  • Ismail, Normaz Wana

    (Fakulti Ekonomi dan Pengurusan Universiti Putra Malaysia 43400 UPM Serdang, Selangor MALAYSIA)

  • Azman-Saini, W.N.W.

    (Fakulti Ekonomi dan Pengurusan Universiti Putra Malaysia 43400 UPM Serdang, Selangor MALAYSIA)

Abstract

The purpose of this study is to examine the impact of foreign aid and FDI on economic growth of Sub-Saharan African countries. The generalized method of moments is applied on 41 countries covering the period of 1998 to 2010. The results suggest that while foreign aid has negative effect on growth, the impact of FDI is positive but statistically insignificant. Furthermore, we found evidence that foreign aid from different bilateral donors may have different effects on economic growth.

Suggested Citation

  • Mohamed, Masoud Rashid & Kaliappan, Shivee & Ismail, Normaz Wana & Azman-Saini, W.N.W., 2014. "Impact of Foreign Aid and Foreign Direct Investment on Economic Growth: Evidence from Sub-Saharan African Countries," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 48(1), pages 63-73.
    • Handle: RePEc:ukm:jlekon:v:48:y:2014:i:1:p:63-73
    as

    Download full text from publisher

    File URL: http://www.ukm.my/jem/wp-content/uploads/2021/06/jeko_481-6.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    2. Art Carden, 2009. "Can’t Buy Me Growth: On Foreign Aid and Economic Change," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 25(Fall 2009), pages 105-123.
    3. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    4. Lensink, R. & Morrissey, O., 2001. "Foreign direct investment: flows, volatility and growth in developing countries," Research Report 01E16, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    5. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
    6. Mr. Dhaneshwar Ghura & Mr. Michael T. Hadjimichael, 1995. "Growth in Sub-Saharan Africa," IMF Working Papers 1995/136, International Monetary Fund.
    7. 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..
    8. David Roodman, 2009. "A Note on the Theme of Too Many Instruments," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 135-158, February.
    9. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
    10. Niels Hermes & Robert Lensink, 2003. "Foreign direct investment, financial development and economic growth," Journal of Development Studies, Taylor & Francis Journals, vol. 40(1), pages 142-163.
    11. B Ouattara & E Strobl, 2003. "Do Aid Inflows Cause Dutch Disease? A Case Study of the CFA Franc Countries," Economics Discussion Paper Series 0330, Economics, The University of Manchester.
    12. repec:dgr:rugsom:01e16 is not listed on IDEAS
    13. Nyoni, Timothy S., 1998. "Foreign Aid and Economic Performance in Tanzania," World Development, Elsevier, vol. 26(7), pages 1235-1240, July.
    14. C. S. Adam & S. A. O’Connell, 1999. "Aid, Taxation and Development in Sub‐Saharan Africa," Economics and Politics, Wiley Blackwell, vol. 11(3), pages 225-253, November.
    15. repec:bla:kyklos:v:38:y:1985:i:2:p:216-32 is not listed on IDEAS
    16. Ram D. Singh, 1985. "State Intervention, Foreign Economic Aid, Savings and Growth in LDCs: Some Recent Evidence," Kyklos, Wiley Blackwell, vol. 38(2), pages 216-232, May.
    17. Hsiao, Frank S.T. & Hsiao, Mei-Chu W., 2006. "FDI, exports, and GDP in East and Southeast Asia--Panel data versus time-series causality analyses," Journal of Asian Economics, Elsevier, vol. 17(6), pages 1082-1106, December.
    18. Durham, J.B.J. Benson, 2004. "Absorptive capacity and the effects of foreign direct investment and equity foreign portfolio investment on economic growth," European Economic Review, Elsevier, vol. 48(2), pages 285-306, April.
    19. Harrigan, Jane & Wang, Chengang, 2011. "A New Approach to the Allocation of Aid Among Developing Countries: Is the USA Different from the Rest?," World Development, Elsevier, vol. 39(8), pages 1281-1293, August.
    20. Neanidis, Kyriakos C. & Varvarigos, Dimitrios, 2009. "The allocation of volatile aid and economic growth: Theory and evidence," European Journal of Political Economy, Elsevier, vol. 25(4), pages 447-462, December.
    21. Burnside, Craig & Dollar, David, 2004. "Aid, policies, and growth : revisiting the evidence," Policy Research Working Paper Series 3251, The World Bank.
    22. 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

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Palaniaandy, Ayappan & Chin, Lee, 2018. "Intellectual Property Rights, Foreign Direct Investment and Economic Growth," MPRA Paper 118780, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michal Chervin & Sweder van Wijnbergen, 2010. "Economic Growth and the Volatility of Foreign Aid," Tinbergen Institute Discussion Papers 10-002/2, Tinbergen Institute.
    2. Innocent .U. Duru & Bartholomew .O.N. Okafor & Millicent Adanne Eze & Gabriel .O. Ebenyi, 2020. "Foreign Aid and Economic Growth: Empirical Evidence from Nigeria," Growth, Asian Online Journal Publishing Group, vol. 7(1), pages 35-50.
    3. Afolabi Tunde Ahmed & Imran Ur Rahman, 2020. "The Impact of FDI and Foreign Aid on the Economic Growth: Empirical Evidence from Sub-Saharan African Countries," International Journal of Science and Business, IJSAB International, vol. 4(6), pages 53-70.
    4. Temple, Jonathan R.W., 2010. "Aid and Conditionality," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4415-4523, Elsevier.
    5. Angeles, Luis & Neanidis, Kyriakos C., 2009. "Aid effectiveness: the role of the local elite," Journal of Development Economics, Elsevier, vol. 90(1), pages 120-134, September.
    6. Kafayat Amusa & Nara Monkam & Nicola Viegi, 2016. "The Political and Economic Dynamics of Foreign Aid: A Case Study of United States and Chinese Aid to Sub-Sahara Africa," Working Papers 201628, University of Pretoria, Department of Economics.
    7. Michael Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting Chickens When They Hatch: The Short-term Effect of Aid on Growth," Working Papers 44, Center for Global Development.
    8. Feeny, Simon & de Silva, Ashton, 2012. "Measuring absorptive capacity constraints to foreign aid," Economic Modelling, Elsevier, vol. 29(3), pages 725-733.
    9. Strand, Jon, 2009. ""Revenue management"effects related to financial flows generated by climate policy," Policy Research Working Paper Series 5053, The World Bank.
    10. Almuth Scholl, 2009. "Aid Effectiveness and Limited Enforceable Conditionality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(2), pages 377-391, April.
    11. Channing Arndt & Sam Jones & Finn Tarp, 2009. "Aid and Growth: Have We Come Full Circle?," Discussion Papers 09-22, University of Copenhagen. Department of Economics.
    12. Chatterjee Santanu & Giuliano Paola & Kaya Ilker, 2012. "Where Has All the Money Gone? Foreign Aid and the Composition of Government Spending," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-36, August.
    13. León-González, Roberto & Montolio, Daniel, 2015. "Endogeneity and panel data in growth regressions: A Bayesian model averaging approach," Journal of Macroeconomics, Elsevier, vol. 46(C), pages 23-39.
    14. Jean-François Ruhashyankiko, 2005. "Why Do Some Countries Manage to Extract Growth from Foreign Aid?," IMF Working Papers 2005/053, International Monetary Fund.
    15. Sushanta Mallick & Tomoe Moore, 2008. "Foreign Capital in a Growth Model," Review of Development Economics, Wiley Blackwell, vol. 12(1), pages 143-159, February.
    16. Silberberger, Magdalene & Königer, Jens, 2016. "Regulation, trade and economic growth," Economic Systems, Elsevier, vol. 40(2), pages 308-322.
    17. Dany Bahar, 2009. "Aid and Fertility," CID Working Papers 38, Center for International Development at Harvard University.
    18. Rajan, Raghuram G. & Subramanian, Arvind, 2011. "Aid, Dutch disease, and manufacturing growth," Journal of Development Economics, Elsevier, vol. 94(1), pages 106-118, January.
    19. Dierk Herzer & Oliver Morrissey, 2009. "The Long-Run Effect of Aid on Domestic Output," Discussion Papers 09/01, University of Nottingham, CREDIT.
    20. Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 375-398, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ukm:jlekon:v:48:y:2014:i:1:p:63-73. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Muhammad Asri Abd Ghani (email available below). General contact details of provider: https://edirc.repec.org/data/feukmmy.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.