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Development Impacts of Foreign Aid on Economic Growth, Domestic Savings and Dutch Disease Presence in Palestine

Mahmoud Sabra and Shaker Sartawi
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Shaker Sartawi: Palestinian Monetary Authority, Palestine.

Authors registered in the RePEc Author Service: Shaker Abdullah Sarsour

International Journal of Economics and Empirical Research (IJEER), 2015, vol. 3, issue 11, 532-542

Abstract: Purpose: This work evaluates impact of foreign aid in Palestine. We review the theoretical literature that shows controversial aid impact on macroeconomic variables that could be positive or negative. Our main interest is to estimate the impact of aid on each domestic savings and economic growth, and whether Dutch disease stands or not. Methodology: We run two models, the first is single equation measures the impact on economic growth using OLS technique, the second is two simultaneous equations measure the impact on both domestic savings and economic growth simultaneously using 2SLS technique. Findings: We find that aid crowds out the domestic savings and impacts negatively on economic growth, which detect the Dutch disease presence. Recommendations: We recommend to carry out policy structure to enhance domestic saving, directing aid to investment and productive sectors, improve policy environment and attract more FDI.

Keywords: Foreign aid; Domestic savings; Economic growth; Dutch disease (search for similar items in EconPapers)
JEL-codes: F35 F43 O16 (search for similar items in EconPapers)
Date: 2015
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Handle: RePEc:ijr:journl:v:3:y:2015:i:11:p:532-542