Regime changes, economic policies and the effect of aid on growth

Islam, Muhammed N.

doi:10.1080/00220380500187828

Cited by 45 publications

(34 citation statements)

References 25 publications

(46 reference statements)

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“…Based on the work of Burnside and Dollar [3], several empirical studies such as Collier and Dollar [4], Ram [5], Islam [8], Boone [6] have incorporated variables such as institutional quality index and policy indices interacted with the aid variable. Their findings showed that the economic policy, institutional and political environment of the recipient country has a crucial role to play in the aid-growth relationship.…”

Section: Introductionmentioning

confidence: 99%

Foreign Aid and Economic Growth in Developing Countries: Evidence from Sub-Saharan Africa

Tang¹,

Bundhoo²

2017

TEL

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This study aims at understanding the impact of foreign aid on the economic growth of the Sub Saharan African region. Despite being the largest foreign aid recipient in the world, the region is the poorest with the lowest Human Development Index (HDI) and Gross National Income (GNI) per capita. This raises serious questions about the effectiveness of foreign aid to the economic growth and development of the region. As such, we examine the relationship between foreign aid, determined by the official development assistance (ODA), and the economic growth rate of the Sub Saharan Africa's ten largest recipients of foreign aid, for a 23-year period from 1990 to 2012. These ten countries include Ethiopia, the Democratic Republic of Congo, Tanzania, Kenya, Côte d'Ivoire, Mozambique, Nigeria, Ghana, Uganda and Malawi. We find that aid by itself does not have significant impact on economic growth. However, the variable aid interacted with the policy index was found to be statistically significant and positive, which means that aid tends to increase growth rate in a good policy environment. Subsequently, when we include the institutional quality index and its interaction term in the model, we find that institutional quality has a positive and significant impact on growth; however, none of the aid variables was significant. We also test the two-gap growth model which states that foreign aid enhances economic growth through investment and imports. The results show that foreign aid is a good ingredient for supplementing investment and imports requirements in these ten countries. We believe that given foreign aid is conditional on the economic, political and institutional environment of the recipient country, this can explain why aid effectiveness is insignificant in the Sub Saharan Africa region where bad governance is a core issue on the region. Therefore, respective governments, donor agencies, and policy makers should take into consideration these multiple aspects when undertaking aid-financing activities.

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Section: Introductionmentioning

confidence: 99%

Foreign Aid and Economic Growth in Developing Countries: Evidence from Sub-Saharan Africa

Tang¹,

Bundhoo²

2017

TEL

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“…Islam (2005) found that, on average, aid had little impact on economic growth, although a robust finding is that aid promotes growth only in a politically stable environment irrespective of the quality of the country's economic policies. Aid is ineffective in an unstable environment even in the presence of good policies.…”

Section: Review Of Literaturementioning

confidence: 93%

Budget Deficit and External Debt in Jordan: Causality and Co-Integration Analysis

Shahateet¹,

Al-Habashneh²,

Al-Majali³

2014

IJEF

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This paper examines the relationship between budget deficit and external public debt in Jordan during 1992-2012. After reviewing major fiscal and monetary developments, we test for stationarity and co-integration of budget deficit and external debt. In addition, we test for the existence and direction of causality between debt and deficit. The findings of this paper provide evidence of neutrality hypotheses suggesting that there is no causality running from budget deficit to external debt and there is no causality running the other way round. Co-integration test supports the absence of long-run relationship. Empirical findings also suggest that fiscal decision makers may disregard external debt when setting budget constrains including taxes and non-interest spending. They also imply that budget constraints must rely on more important factors other than external debt when drawing fiscal policies. These factors may include good governance, tax reforms and lowering government spending on certain economic activities that have little significance on total output.

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“…aid effectiveness simultaneously depends positively on the quality of present policy, negatively on the previous level of policy (support for catching up), positively on economic vulnerability (insurance effect, see below), negatively on political instability (as also found by Islam, 2005), positively on an index said of absorptive capacity combining infrastructure and education 9 .…”

Section: The Heterogeneity Issue: Countries Characteristics Conditionmentioning

confidence: 99%

Aid Effectiveness for Poverty Reduction: Lessons from Cross‑country Analyses, with a Special Focus on Vulnerable Countries

Guillaumont¹,

Wagner²

2014

Revue d'Économie Du Développement

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Regime changes, economic policies and the effect of aid on growth

Cited by 45 publications

References 25 publications

Foreign Aid and Economic Growth in Developing Countries: Evidence from Sub-Saharan Africa

Foreign Aid and Economic Growth in Developing Countries: Evidence from Sub-Saharan Africa

Budget Deficit and External Debt in Jordan: Causality and Co-Integration Analysis

Aid Effectiveness for Poverty Reduction: Lessons from Cross‑country Analyses, with a Special Focus on Vulnerable Countries

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