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Aid and growth in Sub‐Saharan Africa: accounting for transmission mechanisms
Author(s) -
Gomanee Karuna,
Girma Sourafel,
Morrissey Oliver
Publication year - 2005
Publication title -
journal of international development
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.533
H-Index - 66
eISSN - 1099-1328
pISSN - 0954-1748
DOI - 10.1002/jid.1259
Subject(s) - ceteris paribus , economics , investment (military) , panel data , consumption (sociology) , point (geometry) , government (linguistics) , foreign direct investment , percentage point , quarter (canadian coin) , demographic economics , monetary economics , development economics , macroeconomics , international economics , econometrics , politics , finance , geography , microeconomics , political science , social science , linguistics , philosophy , geometry , mathematics , archaeology , sociology , law
This paper is a contribution to the literature on aid and growth. Despite an extensive empirical literature in this area, existing studies have not addressed directly the mechanisms via which aid should affect growth. We identify investment as the most significant transmission mechanism, and also consider effects through financing imports and government consumption spending. With the use of residual generated regressors, we achieve a measure of the total effect of aid on growth, accounting for the effect via investment. Pooled panel results for a sample of 25 Sub‐Saharan African countries over the period 1970 to 1997 point to a significant positive effect of foreign aid on growth, ceteris paribus. On average, each one percentage point increase in the aid/GNP ratio contributes one‐quarter of one percentage point to the growth rate. Africa's poor growth record should not therefore be attributed to aid ineffectiveness. Copyright © 2005 John Wiley & Sons, Ltd.