Foreign aid and growth nexus: Empirical evidence from India and Sri Lanka

Sethi, Narayan; Bhujabal, Padmaja; Das, Aurolipsa; Sucharita, Sanhita

doi:10.1016/j.eap.2019.07.002

Cited by 35 publications

(26 citation statements)

References 29 publications

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“…It shows that an increase of 1% in the AID, FDI, and DI leads to an increase in economic growth by 0.092, 0.146, and 0.118%, respectively. However, the positive relationship that is founded between AID and economic growth is in line with the prior studies of Alemu and Lee (2015), Dalgaard et al (2004), Jena and Sethi (2019), Karras (2006), Ndambendia and Njoupouognigni (2010), Sethi et al (2019), Sothan (2018), and Tait et al (2015), but contrary to Mallik (2008), Liew et al (2012), Niyonkuru (2016), and Yiew and Lau (2018), who found a negative impact of AID on growth in recipient countries. Besides, the positive nexus between FDI and economic growth is similar to previous empirical studies of Borensztein et al (1998), Emmanuel (2014), Olawumi and Olufemi (2016), Umoh et al (2012), Onuoha et al (2018), and Zekarias (2016), suggesting that FDI is an important vehicle for the transfer of technology, which contributes to technological progress and creates a spillover effect, and thereby raises the long‐term growth rate.…”

Section: Resultssupporting

confidence: 88%

The effects of foreign aid, foreign direct investment and domestic investment on economic growth in African countries: Nonlinearities and complementarities

Younsi

Bechtini

Khemili

2021

African Development Review

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This paper examines the relationship between foreign aid (AID), foreign direct investment (FDI) and domestic investment (DI) and its effects on economic growth in 41 African countries. Annual panel data from 1990 to 2016 are examined using fixed-effects (FE) and system-GMM estimators. We test the existence of nonlinearities and complementarities in the relationship between AID-FDI, AID-DI, FDI-DI, and AID-FDI-DI. Empirical results confirm the existence of a nonlinear relationship between AID, FDI, DI, and economic growth. Besides, the results show that AID and FDI have a significant positive complementing effect on economic growth. It is shown also that FDI complements DI, while the coupled effect of AID and DI remains weak in catalyzing growth. Moreover, the results indicate that the complementarity between AID-FDI-DI positively influence economic growth, revealing that AID and FDI work as a complement factor to DI and enhance its effectiveness in promoting economic growth. These insights have important policy implications. Policy-makers in African countries are well advised to implement concrete policy measures suitable for building on the growth momentum created by foreign capital inflows, like FDI, AID as well as remittance. countries to recipient countries, which include both grants and loans from bilateral and multilateral official agencies, are considered as important sources of funds for capital expenditures and could contribute to the immiserizing growth of developing countries (Tim et al., 2004). However, the interaction between AID, FDI, and DI is considered the topic to be studied in developing economies. While, FDI inflows to developing economies remains stable, growing to $706 billion, with significant differences among regions, Africa recorded the largest amount ($45.5 billion) of FDI flows in 2016 (UNCTAD, 2016). The rise in FDI was mainly due to the continuance of resource-seeking investments, and a more than doubling of FDI flows to South Africa (from $2.0 billion to $5.3 billion). Similarly, about AID, it is shown that official development assistance (ODA) receipts of developing countries increased significantly during the decade of the 2000s. However, based on AID recipient data, Africa recorded the highest ($49,954 million) of net ODA recipients in 2016, following by Asia with $43,516 million (World Bank, 2016). Against this background, net flows of ODA continue to be distributed more evenly across different developing countries than other official flows, such as FDI. This is true, despite the fact that donors' aid allocation is not only affected by country needs, but also by additional factors ranging from geopolitical considerations to historical and cultural ties, especially in the case of bilateral flows (Alesina & Dollar, 2000; Anderson, 2008). Though the literature is full of studies investigating the impacts of AID, FDI, and DI on economic growth, it is still inconclusive, with differences in empirical findings in terms of set of countries, data and estimation techniques. While there i...

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Section: Resultssupporting

confidence: 88%

The effects of foreign aid, foreign direct investment and domestic investment on economic growth in African countries: Nonlinearities and complementarities

Younsi

Bechtini

Khemili

2021

African Development Review

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“…We revealed a positive, but weak link between AGR and NODA variables. This finding well agrees with Sethi et al [126] who revealed insignificant impacts of foreign aid inflows on economic growth in India and Sri Lanka in both short-run and long-run perspectives. However, Sethi et al [126] assumed that aid and development assistance tended to be more effective in countries with more developed economic policies and more sound public institutions.…”

Section: Model 2: Agriculture Developmentsupporting

confidence: 93%

“…This finding well agrees with Sethi et al [126] who revealed insignificant impacts of foreign aid inflows on economic growth in India and Sri Lanka in both short-run and long-run perspectives. However, Sethi et al [126] assumed that aid and development assistance tended to be more effective in countries with more developed economic policies and more sound public institutions. In lower-income countries, foreign aid inflows should be directed to the agricultural sector in the form of purchasing agricultural machinery, fertilizers, seeds, and other inputs.…”

Section: Model 2: Agriculture Developmentsupporting

confidence: 93%

The Impact of Foreign Capital Inflows on Agriculture Development and Poverty Reduction: Panel Data Analysis for Developing Countries

et al. 2021

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Combating poverty through the development of agricultural production and providing rural people with new employment and income opportunities in agriculture has become one of the major concerns of both policymakers and scholars worldwide. In many developing countries, government policies have failed to achieve the desired poverty alleviation goals due to the lack of financial resources. Despite that, few comprehensive studies have so far unambiguously identified the effects of the exogenous factor of capital inflows on the level of poverty and agriculture development. In this paper, the authors attempt to shed light on the poverty–agriculture–capital trilemma pattern by revealing the impacts of six types of foreign capital inflows on the parameters of poverty reduction and agriculture development. The panel unit root test and pool mean group estimation techniques were employed for observing the short-term and long-term linkages between dependent and explanatory variables across fourteen developing economies of Latin America, Asia, and Eastern Europe. It was revealed that poverty reduction could be positively affected by an increase in the values of agricultural exports, foreign direct investment, foreign development assistance, and remittances received from migrant workers. The level of agriculture could be improved by deeper integration of developing economies to global food supply chains as either suppliers or consumers of food and agricultural products.

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“…To determine causality and its direction, if any, between tourism sector growth (T t ) and economic growth (Y t ), the study will employ the Wiener-Granger causality technique, popularly known as the Granger causality test ( Granger, 1988 ). Granger causality has a strength of assessing the effect of lag values of one variable on the current value of another variable ( Bates et al., 2013 ; Hamdan et al., 2020 ; Obadiaru et al., 2020 ; Sethi et al., 2019 ). The annual percentage change of the real effective exchange rate (R t ) is also introduced into the model to address the problem of omitted variable bias.…”

Section: Data Conceptual Approach and Methodologymentioning

confidence: 99%

Tourism expansion and economic growth in Tanzania: A causality analysis

Kyara

Rahman

Khanam

2021

Heliyon

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After the economic liberalization in mid-2000, Tanzania has assumed that tourism growth spars economic growth due to the consistent significant contribution of tourism sector to the country's annual income. However, there are limited empirical studies that investigated tourism-economic growth relationship in Tanzania. This study aims to investigate an empirical insight into the actual nature of tourism-economic growth in Tanzania by applying the Granger causality and Wald test methods where annual time series data on international tourism receipt, real Gross Domestic Product, and real effective exchange rate over the period 1989-2018 are used. Further, the Impulse Response Function approach is utilized to provide insight into the qualitative nature of the relationships and the length of time necessary for the causal effect to take place. The findings confirm a unidirectional causality from tourism development to economic growth. The study concludes that Tanzania ought to focus on economic strategies that encourage sustainable tourism development as a feasible source of economic growth.

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Foreign aid and growth nexus: Empirical evidence from India and Sri Lanka

Cited by 35 publications

References 29 publications

The effects of foreign aid, foreign direct investment and domestic investment on economic growth in African countries: Nonlinearities and complementarities

The effects of foreign aid, foreign direct investment and domestic investment on economic growth in African countries: Nonlinearities and complementarities

The Impact of Foreign Capital Inflows on Agriculture Development and Poverty Reduction: Panel Data Analysis for Developing Countries

Tourism expansion and economic growth in Tanzania: A causality analysis

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