Impact of foreign aid on domestic saving (case study in Ethiopia)

Migbaru Alamirew Workneh

MPRA Paper from University Library of Munich, Germany

Abstract: The study has examined the impact of foreign aid ( by disaggregating into bilateral and multilateral aid) on domestic saving in Ethiopia over the period 1981 to 2011 (from 1973 to 2003 Ethiopian Fiscal Year) using multivariate cointegration analysis. The empirical result shows that multilateral aid has a significant positive impact on domestic saving in the long run. On the other hand, bilateral aid has a negative influence on domestic saving. Foreign multilateral aid is effective in enhancing economic growth through domestic saving. However, the foreign bilateral aid has produced a significant negative effect on growth through a decrease in domestic saving which shows that there is crowding out effect which exists when the Government borrowing increases and the fund does not allocate on productive sectors especially when it is spent for consumption purpose.

Keywords: foreign bilateral aid; foreign multilateral aid; domestic saving; cointegration; VECM; Ethiopia (search for similar items in EconPapers)
JEL-codes: E0 E6 E65 (search for similar items in EconPapers)
Date: 2013-06-15, Revised 2019-03-06
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