Foreign Aid-Growth Nexus in India: Cointegration and Causality

Mahendra Pal ()
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Mahendra Pal: University of Delhi

Chapter Chapter 4 in Foreign Capital and Economic Growth in India, 2023, pp 85-117 from Springer

Abstract: Abstract Chapter 4 tests empirically Foreign Aid-Growth nexus in India for the period of 1971–2013. The chapter improves upon earlier work on Foreign Aid-Growth nexus, because it involves Johansen Cointegration technique of 1991 to trace the long-run relationship between Foreign Aid and economic growth in India. After confirming the order of integration, Trace Statistic and Maximum Eigenvalue confirms the positive and long-run relationship between Foreign Aid and Economic Growth in India. Further 1% rise in Aid/GDP ratio causes 0.36% growth rate to increase in India. ECT value is equal to –0.31which shows that during one year period, the level of disequilibrium is corrected by 31%. Granger causality confirms strong causal directions from Foreign Aid to Growth in India. Results are also reconfirmed with the application of IRF and VDC Foreign Aid has made positive contribution in India. Findings are consistent with (Burnside and Dollar, American Economic Review 90:847–868, 2000), Addison et al. (2018), Mallick (2008), (Collier and Dollar, European Economic Review 46:1475–1500, 2002).

Keywords: Aid; Growth; Nexus; Cointegration; VECM; IRF and VDC (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-99-2299-4_4

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DOI: 10.1007/978-981-99-2299-4_4

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