Is Foreign Aid Working? The Impact of Foreign Aid on Savings, Investment, and Economic Growth in Haiti

Arche Jean

Applied Finance and Accounting, 2015, vol. 1, issue 1, 37-46

Abstract: Despite increases in foreign aid inflow to Haiti, the country remains one of the poorest in the world. Findings regarding the benefits of foreign aid have been inconsistent. The purpose of this quantitative, archival study was to examine the extent to which total foreign aid explained gross domestic savings, gross domestic investment, and GDP growth rates in Haiti from 1975 to 2010 after 3-year, 4-year, and 5-year time lags. Foreign aid was disaggregated into grants and concessional loans. Data were drawn from the World Bank, the International Monetary Fund, and the Organization for Economic Cooperation and Development from 1970 to 2010. To analyze the extent to which total foreign aid predicted gross domestic savings and gross domestic investment, weighted least squares regression analyses were conducted, with per capita income, interest rates, and inflation rates as covariates. To examine the degree to which total foreign aid predicted GDP growth rates, multiple linear regression analyses were conducted, with consumption, government spending, gross domestic investment, and net trade balance as covariates. Foreign aid did not predict gross domestic savings for 3-year time lag, F (5, 30) = 1.32, p =.28; 4-year time lag, F (5, 30) = 1.24, p =.32, or 5-year time lag, F(5,30) = 1.30, p =.15. Foreign aid did not predict gross domestic investment for 3-year time lag, F(5, 30) = 1.49, p =.22; 4-year time lag, F(5,30)= 1.73, p =.16, or 5-year time lag, F(5, 30) = 2.29, p =.07. Foreign aid did not predict GDP growth rates for 3-year time lag, F(6, 29), p =.44; 4-year time lag, F(6, 29) = 1.11, p =.38, or 5-year time lag F(6, 29) = 0.83, p =.56. Findings showed that foreign aid inflows to Haiti have not predicted improved economic development. Future research should focus on determining the relationship between foreign aid and government investment in infrastructure, education, health, and social projects. The discussion should shift from whether foreign aid flows to developing countries are effective to how to make the allocation of foreign aid inflows more effective. The result would be improved use of the inflow of foreign aid and improved economic and social progress in developing nations.

Keywords: foreign aid; economic growth; savings; investment; aid effectiveness; developing countries; economic policy. (search for similar items in EconPapers)
Date: 2015
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