Assessment of the effectiveness of foreign aid on the development of Africa

Jiang Hongli and Prince Asare Vitenu‐Sackey

International Journal of Finance & Economics, 2023, vol. 28, issue 1, 79-92

Abstract: Foreign aid with the aim of propagating growth and development in developing countries has been in existence since the end of World War II. Africa as the recipient of aid over this period is still wallowing in poverty and underdevelopment. This phenomenon has interested many researchers and donor agencies to unravel the true impact of aid to the developmental agenda of Africa but the findings are mixed and inconsistent. Our study focused on 50 African countries for the period of 1996 to 2017 on a panel study. The study adopts panel data methodologies such as generalized linear model, Arellano‐Bond dynamic panel data estimations (GMM two‐step approach), and granger causality to achieve our objective of identifying the linear and dynamic relationship among the variables. Foreign aid through developmental assistance is assumed to significantly impact growth but the results from our study report an opposing view thus negative and statistically linear and dynamic relationship. Moreover, the undermining factors hindering aid‐growth relationships in Africa are high levels of corruption, poverty, low level of human development, political instability, and poor institutional quality. On this note, we would like to recommend to policymakers to focus on technical assistance and educational projects that could strengthen institutions rather than other developmental projects. In essence, these would propagate development in the immediate time to promote long‐run growth agenda.

Date: 2023
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