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Is Foreign Aid Beneficial for Sub-Saharan Africa? A Panel Data Analysis

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  • Armah, Stephen E.
  • Nelson, Carl H.

Abstract

Significant ambiguity surrounds the magnitude and sign of the effect of foreign aid on economic growth. Foreign aid can potentially augment scarce domestic capital to spur growth but foreign aid can also remove positive incentive to build wealth, stalling growth. This paper characterizes the effect of foreign aid on the growth of Sub-Saharan African countries after correcting endogeneity problems that plague the estimation. Foreign aid is found to be growth promoting given good governance and using fixed effects in a static panel framework. Data from twenty-one Sub-Saharan African countries spanning 1995-2003 was used in the estimation. The finding of a significant foreign aid-growth relationship is pertinent because it suggests that increased aid to Sub Saharan Africa is one way to achieve the UN’s Millennium goals. By lobbying for increased foreign aid, advocates are prescribing a necessary albeit insufficient medicine for Sub Saharan Africa’s economic problems.

Suggested Citation

  • Armah, Stephen E. & Nelson, Carl H., 2008. "Is Foreign Aid Beneficial for Sub-Saharan Africa? A Panel Data Analysis," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6356, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea08:6356
    DOI: 10.22004/ag.econ.6356
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    Cited by:

    1. Simplice A. Asongu & Jacinta C. Nwachukwu, 2016. "Is the Threat of Foreign Aid Withdrawal an Effective Deterrent to Political Oppression? Evidence from 53 African Countries," Research Africa Network Working Papers 16/020, Research Africa Network (RAN).
    2. Nelson C. Nkalu & Richardson K. Edeme & Winnie O. Arazu, 2019. "Foreign Aids and Sustainable Growth in Africa: Evidence from Nigeria," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 5(2), pages 84-88.
    3. Muhammad Nayaz & Javed Husain, 2013. "Pakistan’s Monetary Aid Concerns," South Asian Journal of Management Sciences (SAJMS), Iqra University, Iqra University, vol. 7(1), pages 31-34, Spring.
    4. Workneh, Migbaru Alamirew, 2018. "Poverty and unemployment in Spain during the 2008's financial crises," MPRA Paper 92145, University Library of Munich, Germany.
    5. Thi Hong Hanh Pham, 2015. "Income Inequality and Foreign Aid," Working Papers hal-01158240, HAL.
    6. Workneh, Migbaru Alamirew & Francken, Nathalie, 2015. "A review of the impact of foreign aid on domestic saving," MPRA Paper 92174, University Library of Munich, Germany, revised 13 Feb 2019.
    7. Juan J. DelaCruz, 2018. "Foreign Aid and HIV/AIDS in Latin America and the Caribbean: Should We Adjust the Degree of Response?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(3), pages 337-349, September.

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    Keywords

    Food Security and Poverty;

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