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Is Foreign Aid Diminishing in Low Income Countries? Implications for COVID-19 era

Author

Listed:
  • Yara Elsehaimy

    (Faculty of Management Technology, German University in Cairo)

  • Dina M. Yousri

    (Faculty of Management Technology, German University in Cairo)

Abstract

Foreign aid is one of the most controversial debates in development for decades. Economists examine the effectiveness and the efficiency of aid through studying its impact on economic growth. However, it has been observed that foreign aid exhibits diminishing returns on its productivity; due to the insufficient absorptive capacity of the recipient country. Despite the importance of analyzing the dimin-ishing feature of foreign aid, the majority of aid studies do not study or include the diminishing feature of aid. Thus, the study wants to answer the question of: is foreign aid diminishing in low income countries' class? The results of the study will give the researchers and policy makers in donor countries insights about whether to increase or decrease foreign aid; in order to fight the era of COVID-19. Study used time series data from 1960 till 2018 for close examination of di-minishing aid feature. Results show that Burkina Faso, Ethiopia, Mozambique, Si-erra Leone, and Uganda show significant diminishing aid feature, While, Central African Republic, Gambia, the, and Togo show significant non-diminishing aid feature. For the countries that have significant diminishing feature, donor coun-tries should not increase the inflow of aid greater than the calculated threshold; as it will lose its productivity. And the countries with non-diminishing significant feature, donor countries should inject more foreign aid greater than the calculat-ed threshold value; in order to improve the economy.

Suggested Citation

  • Yara Elsehaimy & Dina M. Yousri, 2022. "Is Foreign Aid Diminishing in Low Income Countries? Implications for COVID-19 era," Working Papers 55, The German University in Cairo, Faculty of Management Technology.
  • Handle: RePEc:guc:wpaper:55
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    File URL: http://mgt.guc.edu.eg/wpapers/055Yousri_Elsehaimy_2022.pdf
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    More about this item

    Keywords

    Foreign aid; sustainability; economic growth; low income countries; Covid-19; economic stability;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development

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