TY - JOUR
T1 - Foreign aid—Economic Growth Nexus in Africa: Does Financial Development Matter?
AU - Appiah-Otoo, Isaac
AU - Acheampong, Alex O.
AU - Song, Na
AU - Obeng, Camara Kwasi
AU - Appiah, Isaac K.
N1 - Funding Information:
This work was supported by Ministry of Education of Humanities and Social Science Grant of China: [Grant Number 17YJC790127].
Publisher Copyright:
© 2022 Korea International Economic Association.
PY - 2022
Y1 - 2022
N2 - This study explored the role of financial development in foreign aid (measured by agriculture, humanitarian, health, economic infrastructure and services, and education aid) and economic growth relationship for 37 African countries spanning the 2002–2018 period. Using the instrumental variable generalized method of moments model, our findings indicated that while foreign aid impedes Africa’s growth, financial development spurs economic growth. The conditional effect analysis showed that financial development conditions foreign aid to spur economic growth. The country-specific analysis further showed that foreign aid has a higher growth elasticity in countries with relatively better financial systems, such as Mauritius, South Africa, Gabon, Tunisia, and Botswana, whilst the growth elasticity of aid is smaller in countries with a relatively weak financial system such as Malawi, Guinea Bissau, Sierra Leone, and the Democratic Republic of Congo. The study recommended the need for policymakers in Africa to implement innovative ways to improve domestic revenue mobilization. The study also recommended that policymakers in Africa should create an enabling environment that will enhance the development of Africa’s financial system to mitigate the adverse effect of aid on economic growth.
AB - This study explored the role of financial development in foreign aid (measured by agriculture, humanitarian, health, economic infrastructure and services, and education aid) and economic growth relationship for 37 African countries spanning the 2002–2018 period. Using the instrumental variable generalized method of moments model, our findings indicated that while foreign aid impedes Africa’s growth, financial development spurs economic growth. The conditional effect analysis showed that financial development conditions foreign aid to spur economic growth. The country-specific analysis further showed that foreign aid has a higher growth elasticity in countries with relatively better financial systems, such as Mauritius, South Africa, Gabon, Tunisia, and Botswana, whilst the growth elasticity of aid is smaller in countries with a relatively weak financial system such as Malawi, Guinea Bissau, Sierra Leone, and the Democratic Republic of Congo. The study recommended the need for policymakers in Africa to implement innovative ways to improve domestic revenue mobilization. The study also recommended that policymakers in Africa should create an enabling environment that will enhance the development of Africa’s financial system to mitigate the adverse effect of aid on economic growth.
UR - http://www.scopus.com/inward/record.url?scp=85131526656&partnerID=8YFLogxK
U2 - 10.1080/10168737.2022.2083653
DO - 10.1080/10168737.2022.2083653
M3 - Article
AN - SCOPUS:85131526656
SN - 1016-8737
VL - 36
SP - 418
EP - 444
JO - International Economic Journal
JF - International Economic Journal
IS - 3
ER -