Top PDF Foreign aid and economic growth in Ethiopia

Foreign aid and economic growth in Ethiopia

Foreign aid and economic growth in Ethiopia

The empirical result from the investment equation estimated shows that aid has a significant positive impact on investment in the long run. Its positive impact is not limited only to the long run but also aid finances investment in the short run. On the other hand, volatility of aid by creating uncertainty in the flow of aid has a negative influence on domestic capital formation activity. In addition, inflation and saving are found to have a negative influence on investment. However, in the short run saving has got a significant positive impact on investment and inflation’s effect is similar. The result further shows that debt serving appeared insignificant. The paper also examined the growth impact of aid, among other variables and its interaction with policy index. The policy index is constructed as a weighted sum of budget deficit, openness and credit access to the private the sector to capture fiscal, trade and monetary policy. Although this index provides a good idea of a country’s policy stance, we believe that it is not broad enough for a typical developing country like Ethiopia. Therefore, the policy index is augmented by major telephone lines per 1000 people (tele) and is relatively broad. Tele is used as indicator (proxy) for infrastructure policy.
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The Impact of Foreign Aid in Economic Growth: An Econometric Analysis of Bangladesh

The Impact of Foreign Aid in Economic Growth: An Econometric Analysis of Bangladesh

not very high but can be considered as reasonably acceptable while keeping in mind that a substantial proportion of the variation of the dependent variable could not be explained by the included regressors. Focusing on the issue of the relative contribution of domestic vis-a- vis foreign resources in promoting economic growth. It appears that domestic resources as proxies by SY performs better than foreign resources. In most regressions, the savings ratio came out with positive and statistically significant (at 5% level) coefficients. Similar results were obtained in other studies as well (Weisskoff, 1972; Papanek. 1973; Gupta and Islam, 1983). The aggregate aid ratio (AIDDY) is not statistically significant. This insignificance may be caused by the aggregation of different kinds of foreign aid into one single category. However its decomposition into grants (GRNTDY) and loans (LOANDY) doesn’t improve the regression results significantly. In our country, GRNTS are more effective than LOANs. Since grants are not to be repaid, it is possible that the government authorities may have allowed various administrative slacks and perhaps tolerated a greater degree of corruption in its utilization.
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The effect of foreign direct investment on economic growth in Ethiopia; an empirical investigation

The effect of foreign direct investment on economic growth in Ethiopia; an empirical investigation

In the above result, the estimated coefficient of the real GDP growth rate (0.19) is statistically significant at the 1 percent level which is positive and consistent with the expectation. This statistically significant coefficient of GRGDP confirms the existence of simultaneity problem which justifies our specification of a simultaneous equations model is therefore correct. And this estimated coefficient on growth rate of real GDP indicates that, other things remaining constant, a 1 percentage point increase in real GDP growth rate would raise rate of FDI growth by 0.19 percentage point. It seems that higher economic growth in Ethiopia indeed reflects good signals about the Ethiopian economy to foreign investors. Thus, countries with large market and high market potentials are more likely to be successful in attracting FDI than poorer countries which is perfectly in line with the FDI theory. That is, the higher the rate of economic growth is the higher the rate of FDI inflows in a country. It is believed that foreign investors are keen to invest their money in those countries where the growth rate of the economy is showing an upward trend. A high level of economic growth is also a strong indication of market opportunity which in turn a basis for high amount of FDI inflows. The coefficient of inflation (-0.86) which is significant at 5% level indicates that there is a negative correlation between FDI and inflation. That is, High and unpredictable inflation which is a proxy for macroeconomic instability distorts the information content of the market prices and the incentive structure which affects FDI inflows negatively. The growth rate of total external debt variable (GD) has also negative effect on growth rate of FDI which is significant at 5 percent level. This suggests that growth rate of total foreign debt is a case for macroeconomic instability which affects FDI inflows negatively. A devaluation of real exchange rate tends to raise FDI inflows into Ethiopia as the estimated coefficient of real exchange rate (0.37) is positive and statistically significant at the 1 percent level in the 3SLS estimation. Also the dummy variable coefficient (56.09) which is significant at 5 percent level indicates that there is a significant increment in the inflow of FDI in Ethiopia after 1991, where the Ethiopian economy shifted from command economy to market oriented system.
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Effects of foreign aid on the recipient country's economic growth

Effects of foreign aid on the recipient country's economic growth

We introduce an infinite-horizon endogenous growth framework for studying the effects of foreign aid on the economic growth in a recipient country. Aid is used to partially finance the recipient’s public investment. We point out that the same rule of aid may have very different outcomes, depending on the recipient’s circumstances in terms of development level, domestic investment, efficiency in the use of aid and in public investment, etc. Foreign aid may promote growth in the recipient country, but the global dynamics of equilibrium are complex (because of the non-monotonicity and steady state multiplicity). The economy may converge to a steady state or grow without bounds. Moreover, there are rooms for the divergence and a two-period cycle. We characterize conditions under which each scenario takes place. Our analysis contributes to the debate on the nexus between aid and economic growth and in particular on the conditionality of aid effects. Keywords: Aid effectiveness, economic growth, cycle, poverty trap, public invest- ment, threshold.
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Foreign aid and economic growth in Kenya: (1970-2013)

Foreign aid and economic growth in Kenya: (1970-2013)

These negative results between foreign aid and economic growth showed that the economy should reduce the amount of aid it gets and instead focus on investment which has a positive relati[r]

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Foreign Aid and Economic Growth in Egypt: A Cointegration Analysis

Foreign Aid and Economic Growth in Egypt: A Cointegration Analysis

Foreign aid remained an important source of finance for capital scarce (poor) countries and continued to play a multifaceted role in financing their development needs. Despite the massive literature on the subject, a consensus has not been reached by researchers regarding the growth impact of aid, rather the results are inconclusive. Thus one can find both success and failure stories. The study examined the macroeconomic impact of aid in Egypt with special emphasis, as the country is seeking financial aid from Arab countries as well as international donors to help narrow its deficit. This paper rises a main question to what extent such foreign capital flows will help the country to improve its economic growth and pass its critical period. The paper used a Johansen cointegration test to test the long run impact of foreign aid on economic growth for 1970-2010 period, it also used a Vector Error Correction Model (VECM) model to facilitate the discrimination of the short run and long run impact of foreign aid on economic growth.
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Foreign Aid, Domestic Savings, And Economic Growth In South Asia

Foreign Aid, Domestic Savings, And Economic Growth In South Asia

In this study we empirically investigate the role of foreign aid on domestic savings and economic growth in SAARC 1 member countries. However, due to lack of data availability Bhutan and Maldives are not included in this study. Most of the past studies have focused on the relationship between aid inflows and economic growth. Very limited attention has been paid to test the impact of foreign aid on domestic saving in these countries. This study aims to investigate the role of foreign aid on savings and growth. South Asia has been the habitants of one fourth of the World population. The average annual growth rate per capita in the region in 2008 is 5.42 percent and it received $12.3 billion net foreign aid in the same year which ranks third position in the World Bank regional Classification. 2 The region has several things in common - historical tie, cultural affinity, relatively homogenous economic set up with GDP per capita ranging from $524 in Nepal to $2375 in Sri-Lanka in current US dollar in 2010. Many studies have investigated the effectiveness of foreign aid on growth for individual South Asian countries 3 but very few studies have been done for all South Asian countries. Additionally, very few studies have tested the impact of foreign aid on both growth and saving simultaneously. The present study intents to fill this gap in the literature. Similarly, most of prior studies have used a linear regression with some control variables to analyze aid-growth relationship. A well accepted weakness of this technique is the failure to consider the likely simultaneity between growth and savings. We, therefore, develop a simultaneous equation system to fix the endogeneity problem.
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Drivers of Ethiopian Economic Growth: A Systematic Review

Drivers of Ethiopian Economic Growth: A Systematic Review

Abstract- The main focus of this review is to identify the major drivers of Ethiopian Economic Growth. A deep literature review was done on 12 papers conducted in Ethiopia between year 2011 and 2015. The review result shows that Economic growth, as measured by GDP, is highly and positively influenced by human capital investment and export in both short and long run. In the same token, public expenditure (for productive sector), private investment, real exchange rate and household consumption are also important in determining economic growth, especially in the long run. The study finally recommends that Ethiopia should seriously work in sustaining the current progress in growth hemisphere. For this purpose the country need to promote private and public sector investment, human capital development and institutional capacity building.
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Does energy-environmental Kuznets curve hold for Ethiopia? The relationship between energy intensity and economic growth

Does energy-environmental Kuznets curve hold for Ethiopia? The relationship between energy intensity and economic growth

We applied the ARDL bounds testing approach to investigate the long-run relation- ship among energy intensity, income, income squared, urbanization, industrialization, foreign aid and import in case of Ethiopia for period covering 1970–2014. The ARDL bound testing is preferred due to the fact that it is applicable irrespective of the order of integration of the series. This avoids bias due to the pretesting of the order of integration of the variables. Results in Table 1 shows that none of the variables is stationary at I (2) or beyond that order of integration for the computation of the ARDL F-statistic to be valid. In doing so, we have applied Zivot–Andrews single structural break trended and Clemente–Montane–Reyes two structural breaks unit root tests to ensure that none of the variables is integrated of order 2 or beyond. The results of both types of unit root test are reported in Table 1. Our empirical evidence reveals that all the series show unit root problem at their level but found to be integrated at I(1). This entails that the series is stationary in their first differenced form. So, it is possible for us to test the existence of a long-run relationship between energy intensity, income, income squared, urbanization, industrialization and aid in the presence of double structural break in the series over the period of 1974–2014.
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Does Foreign Aid Accelerate Economic Growth? An Empirical Analysis For Nigeria

Does Foreign Aid Accelerate Economic Growth? An Empirical Analysis For Nigeria

Over the last half century, foreign aid has emerged as a dominant strategy for alleviating poverty in the third world. Not coincidentally, during this time period major international institutions, such as the United Nations, World Bank, and International Monetary Fund gained prominence in global economic affairs (Hjertholm and White, 2003). Yet it seems that sixty years later, the lesser developed countries (LDCs) of the world continue to suffer from economic hardship, raising questions of whether foreign aid is a worthwhile and effective approach to boosting growth and development in recipient economies. Then how does foreign aid affect growth? This is a question that has attracted the attention of many scholars over several decades. The empirical evidence obtained from these extensive studies have been mixed (see also Murphy and Trep, 2006; and Duc, 2006) 1 . In between, however, are some others who argue on the role of economic policy in determining the effectiveness of foreign aid in aid recipient countries. Pedersen (1996) argues that it is not possible to conclude that the foreign aid has a positive impact on growth. Morrisey (2001) claimed that aid works well conditional on other variables in the growth regression. Mosley (1980), Mosley, et al. (1987), Boone (1996), and Jensen and Paldam (2003) found evidence to suggest that aid has no impact on growth. Many other authors find no evidence that aid affects growth in developing countries. By and large, the relation between aid and economic growth remains inconclusive and is worth being studied further.
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Foreign Aid, Legal Origin, Economic Growth and Africa’s Least Developed Countries

Foreign Aid, Legal Origin, Economic Growth and Africa’s Least Developed Countries

geographical factors, which account for “deep structural” characteristics, rather than policies, are keys in determining the effectiveness of foreign aid on growth (Dalgaard et al., 2004; Roodman, 2004). Geographical factors, for example, may affect productivity, especially in the agricultural sector (Bloom and Sachs, 1998; Sachs, 2001, 2003 and Masters and McMillan, 2001) and may also have influence on slow moving structural characteristics such as institutions (Easterly and Levine, 2003 and Acemoglu, Simon and James, 2002). Dalgaard et al. (2004) captures the conditional effects of aid on economic growth by interacting aid with the proportion of land in the tropics. Based on their empirical analysis, they provide a convincing conclusion that their findings (that aid is ineffective in the tropics) are superior to those based on policy interaction (Burnside and Dollar, 2000) and concavity effects (Dalgaard and Hansen, 2001). Roodman (2004) asserted that foreign aid works well outside of the tropic and not in the tropical countries. However, Radelet, Clemens and Bhavnani, (2005) dismisses the validity of geographical factors as merely a separation of countries where aid has worked from those countries where it has failed, rather than an explanation of a causation of aid ineffectiveness.
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Quantity or quality? foreign aid implications on economic growth in least developed countries

Quantity or quality? foreign aid implications on economic growth in least developed countries

In an attempt to answer the question of whether the quantity or quality of foreign aid matters to economic growth of LDCs, we analyze aid effects based on different categories of aid. Additionally, we include a squared term to capture the concavity effects as predicted by the takeoff hypothesis. Table 1.1 reports results based on total aid (overseas development assistance), total bilateral aid and aid from EU, UK and US. After controlling for policy, institutional and other determinants of growth, we find a significant U-shaped relationship between aid and economic growth, regardless of the type of aid. This is contrary to the expectations and literature predictions due to some elements of geostrategic (delayed impact effects) in these aid categories. Also the coefficient on the dummy variable for sub- Saharan Africa (SSA) LDCs is statistically significant in the three (total aid, total bilateral aid and bilateral aid from UK) out of the five categories. The lack of significance in the SSA dummy under the EU category is somewhat surprising since a large proportion of EU aid flows to SSA LDCs relative to Asian and Latin America LDCs (see figure 2)
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Threshold Effects in the Foreign Aid Economic Growth Relationship: The Role of Institutional Quality and Macroeconomic Policy Environment

Threshold Effects in the Foreign Aid Economic Growth Relationship: The Role of Institutional Quality and Macroeconomic Policy Environment

un- es. According to our investigation, no amount of for- eign assistance will promote sustainable growth and de- velopment in ECOWAS countries if the problem of un- stable macroeconomic environment and bad institutional quality persists. The second insight is that institutional quality is a sine qua non condition for aid to promote economic performance. Hence, States II and IV are iden- tified as determinant regimes for the effective contribu- tion of aid to sustainable growth and improve the welfare in ECOWAS countries. Finally, from the two conditional indexes, institutional quality is more important condition through which aid positively affects economic growth. Making access to better institutional quality may be a way to spur economic growth even in a bad macroeco- nomic policy environment. It is, therefore, crucial for governments in the ECOWAS area to improve institu- tional quality and to pursue economic policies that are conducive to, among others, low inflation, productive budgetary balance and a competitive environment, and that attend to the incessant corruption and political insta- bility. Unless such measures are taken, the problem of slow growth will remain unabated. Our results also ad- vocate the development of alternative mechanisms for aid, as aid flows are shown to have an uncertain effect on the growth performance of the recipients. Therefore, it is worth investigating how the two instruments, foreign aid and institutional quality, work together.
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Foreign Aid and Aid Policy effectiveness on Economic Growth of Ghana

Foreign Aid and Aid Policy effectiveness on Economic Growth of Ghana

ABSTRACT : The concept of foreign aid became a fundamental component of international affairs and an essential instrument to rebuild the world after the World War II. Many developing countries including Ghana depend on it in order to support their budget or finance economic projects and programmes in their countries. The study examines the impact of foreign aid inflow on economic growth for the Ghanaian economy for the period 1975 to 2010 by adopting the Burnside and Dollars model. We indicated that foreign aid has a positive but insignificant effect on economic growth of Ghana. The study concludes by examining and recommending important policy issues that must be given thorough attention in order to achieve significant impact of aid on Ghana’s economic growth.
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Foreign Aid and Economic Growth

Foreign Aid and Economic Growth

Generally, it was assumed that most of the developing countries have inadequate levels of savings and In- vestment and foreign aid can complement domestic savings, which could be concentrating toward investment. In this study, we assume that all foreign aid will be allocated for investment and further economic growth purposes. Poor countries also face the problem of insufficient export earnings required to import capital goods for invest- ment. Most of the developing and under developed countries do not have the potential capacity to generate rev- enue to cover the minimum substantial level of public investment. In this regard, the foreign aid is seen as es- sential tool to fill this gap in developing countries.
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IMPACT OF FOREIGN AID ON ECONOMIC GROWTH

IMPACT OF FOREIGN AID ON ECONOMIC GROWTH

This segment tries to highlight the various theoretical works done by scholars in the field of foreign aid and growth. Daniel m’ Amanja and Oliver Morrissey (2005) used country specific studies to analyze the relationship between foreign aid, investment, trade and economic growth in Kenya. They argued that cross country studies which form the backbone of the literature on the determinant of economic growth in developing countries faces various limitations. The main objective of their work was identifying aspects of economic growth in Kenya, in particular if aid played a role. They thus used a multivariate time series estimation approach to investigate some of the determinants of economic growth in a single small open economy. Vector Autoregressive Modelling was the thrust of their methodology. They came to the conclusion that foreign aid in the form of net external loans is found to have a significant negative impact on long run growth (Amanja and morrisey 2005).
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The Effect of Foreign Aid on the Economic Growth of Bangladesh

The Effect of Foreign Aid on the Economic Growth of Bangladesh

Bangladesh is a recipient of foreign aid since its independence in 1971 and receives about $56.5 billion till 2012. This paper estimates 33 years data on foreign aid for 1980-2012 periods and analyzes the effects of foreign aid on the economic growth of Bangladesh. To examine the effects of aid more precisely, this study estimates eight separate models including three for the last three decades (1980-1990, 1991- 2001, 2002-2012), four for the four different government period namely, Military government (1982-1990), BNP (Bangladesh Nationalist Party) government (1991- 1995, 2002-2006) , BAL (Bangladesh Awami League) government (1996-2001, 2009- 2012) and the Whole Democratic government period (1991-2012) and one for the entire period (1980-2012). This research finds that, foreign aid has positive effect on the economic growth of Bangladesh and it is statistically significant in two models out of eight models. This paper also reveals that the aid generates decreasing returns in Bangladesh because of capacity constraint of Bangladeshi institutions to utilize the foreign aid effectively. This finding is consistent with previous findings of different researches.
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The quest for growth in developing countries : an analysis of the effects of foreign aid on economic growth

The quest for growth in developing countries : an analysis of the effects of foreign aid on economic growth

No matter the econometric techniques employed, weaknesses in available data pose a crucial constraint to empirical growth research. The effect of data limitations on the results from cross-country growth studies and their interpretation may be more serious than generally believed. Firstly, while the main datasets, PWT and WDI, have over the years managed to incorporate more countries and years, they are still bedevilled by missing data especially for the earlier years. Since a typical cross-country regression estimation essentially covers a long period of time, missing data limits both the longitudinal scope and the cross-sectional breadth e.g. Burnside and Dollar (2000) have six four-year averages over the period 1970-1993 and include only 56 countries out of a possible 170 at the time. Limited cross-sectional coverage diminishes the extent to which researchers can address problems such as measurement error and parameter heterogeneity (Temple et al. (2005)) and also leaves estimations open to selection bias (Trew (2006)). Further, the practice of averaging over four-year periods leaves such regressions prone to be affected by cyclical factors which are hard to control for (Rajan and Subramanian (2008)).
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