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Impact of foreign aid on domestic saving (case study in Ethiopia)

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  • Workneh, Migbaru Alamirew

Abstract

The study has examined the impact of foreign aid ( by disaggregating into bilateral and multilateral aid) on domestic saving in Ethiopia over the period 1981 to 2011 (from 1973 to 2003 Ethiopian Fiscal Year) using multivariate cointegration analysis. The empirical result shows that multilateral aid has a significant positive impact on domestic saving in the long run. On the other hand, bilateral aid has a negative influence on domestic saving. Foreign multilateral aid is effective in enhancing economic growth through domestic saving. However, the foreign bilateral aid has produced a significant negative effect on growth through a decrease in domestic saving which shows that there is crowding out effect which exists when the Government borrowing increases and the fund does not allocate on productive sectors especially when it is spent for consumption purpose.

Suggested Citation

  • Workneh, Migbaru Alamirew, 2013. "Impact of foreign aid on domestic saving (case study in Ethiopia)," MPRA Paper 92577, University Library of Munich, Germany, revised 06 Mar 2019.
    • Handle: RePEc:pra:mprapa:92577
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    References listed on IDEAS

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    More about this item

    Keywords

    foreign bilateral aid; foreign multilateral aid; domestic saving; cointegration; VECM; Ethiopia;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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