Moderating Effect of Institutional Quality on Relationship Between Foreign Aid and Economic Growth in Africa

Oliver E. Ogbonna, Jonathan E. Ogbuabor, Afamefuna A. Eze and Walter O. Ugwuoke

Politická ekonomie, 2021, vol. 2021, issue 4, 457-478

Abstract: Africa has received considerable amounts of external aid over the last two decades without significant improvements in socio-economic conditions on the continent. This study, therefore, examines the effects of foreign aid on growth in Africa, and how institutional quality can moderate these effects. The study used the system generalized method of moments estimation technique and a panel of forty-two African countries over the period 2010-2018. Interestingly, the study established that even though foreign aid impacts negatively on growth in Africa, improving the quality of institutions on the continent can reverse this negative effect. In fact, the study computed a threshold value of institutional quality beyond which foreign aid would be a blessing to Africa. This implies that for foreign aid to contribute meaningfully to growth in Africa, the quality of institutions should improve beyond this threshold. Unfortunately, the average level of institutional quality in Africa is presently below this threshold. The study concluded that policymakers in Africa should take urgent steps to strengthen the quality of institutions on the continent as a means of exploiting the continent's huge foreign aid to drive growth and reduce the excruciating effects of poverty plaguing more than half of its population.

Keywords: Foreign aid; institutional quality; economic growth; system GMM; Africa (search for similar items in EconPapers)
JEL-codes: C23 F35 F43 N17 N20 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://polek.vse.cz/doi/10.18267/j.polek.1314.html (text/html)
http://polek.vse.cz/doi/10.18267/j.polek.1314.pdf (application/pdf)
free of charge

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:prg:jnlpol:v:2021:y:2021:i:4:id:1314:p:457-478

Ordering information: This journal article can be ordered from
Redakce Politické ekonomie, Vysoká škola ekonomická, nám. W. Churchilla 4, 130 67 Praha 3
http://polek.vse.cz

DOI: 10.18267/j.polek.1314

Access Statistics for this article

Politická ekonomie is currently edited by Jiřina Bulisová

More articles in Politická ekonomie from Prague University of Economics and Business Contact information at EDIRC.
Bibliographic data for series maintained by Stanislav Vojir ().