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Aid, growth and institutions in Sub‐Saharan Africa: New insights using a multiple growth regime approach
Author(s) -
Ouedraogo Rasmane,
Sourouema Windemanegda Sandrine,
Sawadogo Hamidou
Publication year - 2021
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.12968
Subject(s) - aid effectiveness , robustness (evolution) , economics , language change , corporate governance , developing country , sample (material) , government (linguistics) , development economics , good governance , international economics , economic growth , finance , art , biochemistry , chemistry , linguistics , philosophy , literature , chromatography , gene
Numerous sub‐Saharan African countries depend heavily on foreign aid. This paper explores the impact of foreign aid on economic growth in the continent using a finite mixture model. Contrary to previous studies, we hypothesise that the effect of aid on growth differs across groups of countries with similar but unobserved characteristics. The paper incorporates the potential presence of hidden heterogeneity and tries to explain group membership of countries by using various metrics of institutional variables. Focusing on a sample of 25 countries, we find that the impact of foreign aid on growth differs across three different groups of countries. Moreover, we find that aid works best in countries with effective government, good regulatory quality and low corruption. The results are robust to a battery of robustness checks. The paper underlines the importance of incorporating the heterogeneity in growth process in studies on aid effectiveness and provides evidence that sub‐Saharan African countries should undertake deep governance reforms to benefit from foreign aid.