External aid behavior in the recipient economy: A probit regression for Africa

Adediyan Aderopo Raphael () and Ehisuoria Oseremen ThankGod ()
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Adediyan Aderopo Raphael: Economics Department, Faculty of Social Sciences, University of Benin, Benin City, Nigeria
Ehisuoria Oseremen ThankGod: Economics Department, Faculty of Social Sciences, University of Benin, Benin City, Nigeria

Journal of Economics and Management, 2022, vol. 44, issue 1, 1-18

Abstract: Aim/purpose – External aid allocation by the donors in recent years has been fraught with instability and volatility. This has a negative consequence on the recipient economies particularly those that are highly aid-dependent. A good solution to the problem requires much understanding of factors influencing the behavior of external aid in the respective recipient economy. In this study, the focus was on analyzing two economic factors uncommonly discussed in the empirical literature – the influence of the degree of economic freedom and external debt burden on aid allocation, with emphasis on African economy. Design/methodology/approach – The study constructs a probit model for the analysis using a panel dataset consisting of 48 African countries from 2010 to 2019. Findings – The key findings of the study include a significant positive effect of economic freedom on aid and it implies that the probability of an additional external aid allocation to African countries increases with an increase in the degree of economic freedom. However, external debt burden, albeit positive, is not statistically significant to motivate more external aid allocations to Africa over the sample period. Research implications/limitations – Hence, the pattern of external aid inflows in Africa is a reflection of a change in the degree of economic freedom in the region. Originality/value/contribution – In contribution to filling the gap in the literature on external aid inflow in the recipient economies, the study traced external aid fluctuations in Africa to external debt burden and the extent of restriction imposed on economic freedom in African countries.

Keywords: external aid; economic freedom; external debt burden; probit regression (search for similar items in EconPapers)
JEL-codes: C01 E02 F34 F35 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:jecman:v:44:y:2022:i:1:p:1-18:n:4

DOI: 10.22367/jem.2022.44.01

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