Aid, Aid Volatility and Sectoral Growth in Sub-Saharan Africa: Does Finance Matter?

Abstract

This article examines the impact of aid and its volatility on sectoral growth by relying on panel dataset of 37 sub-Saharan African (SSA) countries for the period 1983-2014. Findings from the system-generalised methods of moments (GMM) show that, while foreign aid significantly drives sectoral growth, aid volatility deteriorates sectoral value additions impacting heavily on non-tradable sectors with no apparent effect on the agricultural sector.The deleterious effect of aid volatility on sectoral value additions in SSA is weakened by a well-developed financial system with significant impact on the tradable sector. Evidently, development of domestic financial markets enhances aid effectiveness.

Financial development, sectoral effects, and international trade in Africa: An application of pooled mean group (PMG) estimation approach

“…1 See Senbet and Otchere (2006) for a survey of some financial sector reforms in Africa. 2 Kumi et al (2017) note that, whereas finance improves sectoral growth in sub-Saharan Africa, aid volatility weakens sectoral value additions. However, the negative impact of aid volatility on sectoral value additions is dampened by a well-developed financial system.…”

“…This importance is largely evident on its impact on economic growth (Alexiou, Vogiazas, & Nellis, 2018;Ibrahim & Alagidede, 2016;Ibrahim & Alagidede, 2017a;Swamy & Dharani, 2018), economic volatility (Dabla-Norris & Srivisal, 2013;Ibrahim & Alagidede, 2017b), and sectoral value additions (Kumi, Ibrahim, & Yeboah, 2017). This importance is largely evident on its impact on economic growth (Alexiou, Vogiazas, & Nellis, 2018;Ibrahim & Alagidede, 2016;Ibrahim & Alagidede, 2017a;Swamy & Dharani, 2018), economic volatility (Dabla-Norris & Srivisal, 2013;Ibrahim & Alagidede, 2017b), and sectoral value additions (Kumi, Ibrahim, & Yeboah, 2017).…”

“…Undoubtedly, the importance of domestic financial development cannot be overemphasized. This importance is largely evident on its impact on economic growth (Alexiou, Vogiazas, & Nellis, 2018;Ibrahim & Alagidede, 2016;Ibrahim & Alagidede, 2017a;Swamy & Dharani, 2018), economic volatility (Dabla-Norris & Srivisal, 2013;Ibrahim & Alagidede, 2017b), and sectoral value additions (Kumi, Ibrahim, & Yeboah, 2017). More recently, Gyeke-Dako, Agbloyor, Turkson, and Baffour (2018) observe that financial development lowers the social costs of financial intermediation.…”

Facing the Bullet? Non-Governmental Organisations’ (NGOs’) Responses to the Changing Aid Landscape in Ghana

“…It is important to mention that ODA inflows into Ghana and other subSaharan African countries are volatile as highlighted in the literature (Adams and Atsu 2014;Kumi et al 2017). For instance, ODA inflows into Ghana experienced a substantial increase from US$ 1.7 billion to US$ 2.1 billion between 2005 and 2009, but this declined drastically from US$ 1.8 billion to US$ 1.1 billion between 2010 and 2014 following the country's transition to a LMIC status (OECD 2017).…”

Dynamic openness and finance in Africa

“…Mechanisms that have facilitated the recent financial crisis and global economic meltdown have resurfaced concerns (in developing countries) about the positive ambitions of globalization and its implications for growth and volatility (Asongu, 2014a;Kumi et al, 2017). In fact the crises have brought renewed interest in the heated debate on the advantages of openness policies and their implications for financial development.…”