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A Re-examination of Domestic Saving-Foreign Aid Relationship in the Context of Bangladesh

Mohammad Razzaque () and Nazneen Ahmed
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Nazneen Ahmed: Senior Research Fellow, Bangladesh Institute of Development Studies (BIDS)

Bangladesh Development Studies, 2000, vol. 26, issue 4, 1-37

Abstract: The empirical studies in the context of Bangladesh provide contradictory evidence regarding the relationship between domestic saving and foreign aid. The present article examines the domestic saving-foreign aid relationship using the cointegration and error-correction modelling strategies to tackle the problem of non-stationary data, which the earlier studies overlooked. Three different cointegration techniques have been used and in every case a valid long-run inverse relationship between saving and aid is observed. The short-run error-correction models have also confirmed the negative relationship between these two variables. The Granger Causality test identifies a long-run causal relationship running from foreign aid to saving while in the short-run a bi-directional causality is found. This paper finds that the negative relationship between saving and aid is quite ' robust' and not sensitive to the choice of variables in the saving function.

Keywords: Foreign aid; Causality; Development studies; Variable coefficients; Critical values; Autocorrelation; Gross domestic product (search for similar items in EconPapers)
JEL-codes: A12 (search for similar items in EconPapers)
Date: 2000
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