The relationship between foreign aid and economic growth has drawn great attention for years. The topic is extremely controversial one. There is now a large literature on the relationship between aid and growth. Empirical findings between aid and economic growth is mixed.
Some studies found positive relationship between aid and GDP growth rate. For example, study conducted by Hansen and Trap (2000) examines the relationship between foreign aid and GDP per capita. They found that aid increases the GDP growth rate without conditionality on good policy. When aid is controlled for human capital and investment no positive effect of aid is found. In a study by McGillivray (2005) explains how aid to African countries not only increases growth but …show more content…
A study by Karras (2006) examines the relationship between foreign aid and growth in per capita GDP using annual data from 1960 to 1997. He conducted his study for 71 developing countries. He found that foreign aid has a positive and permanent effect on economic growth. Ogundipe and Ojeaga (2014) examined the relationship between foreign aid and economic development in Sub-Saharan Africa. It was observed that foreign aid does not significantly influenced GDP per capita in Sub-Saharan Africa, but after adjusting to the role of economic policy the relation converses. Another study by Refaei and Sameti (2015) investigates the association between foreign aid and per capita GDP growth of Iran by using annual data from the 1980 to 2012 period. The suggestion of this paper is that, aid is more productive than domestic resources and other capital inflows. Their results showed that, the effect of foreign aid on economic growth is positive, statistically significant, and substantial in the long run. The study by Basharat Hossain (2014), examined 33 years of data for the period 1980-2012 to show the effects of foreign aid on the economic growth of Bangladesh. The author created four different models for different government periods. This …show more content…
For example, Ram (2004) looked at the issue of effectiveness of foreign aid. He found no significant positive relationship between foreign aid and poverty reduction or foreign aid and economic growth in recipient countries even in the presence of good policy. According to the study of Boone (1996), aid has no impact on investment or growth in regular neo-classical growth models. Boone identified the main reason behind the ineffectiveness of aid. Politicians of recipients’ countries often try to adjust distortionary policies when they receive aid flows. But it is not optimal always to just adjust policies to stimulate growth. Since, poverty is not caused by only capital shortages. Rajan and Subramanian (2008) examined the effects of aid on growth in both cross-sectional and panel data. They found no significant relationship between aid and growth even after correcting some possible expected bias. They even found no better result for good policy or geographical environment. Thus they suggested rethinking about aid effectiveness. The paper by Liew, Mohamed and Mzee (2012) examined the impact of foreign aid on economic growth of East African countries over the period of 1985 to 2010. Their results suggested that foreign aid has significant negative effects on economic growth for these East African countries. Mbah and Amassoma (2014) studied the Linkage between Foreign Aid
Some studies found positive relationship between aid and GDP growth rate. For example, study conducted by Hansen and Trap (2000) examines the relationship between foreign aid and GDP per capita. They found that aid increases the GDP growth rate without conditionality on good policy. When aid is controlled for human capital and investment no positive effect of aid is found. In a study by McGillivray (2005) explains how aid to African countries not only increases growth but …show more content…
A study by Karras (2006) examines the relationship between foreign aid and growth in per capita GDP using annual data from 1960 to 1997. He conducted his study for 71 developing countries. He found that foreign aid has a positive and permanent effect on economic growth. Ogundipe and Ojeaga (2014) examined the relationship between foreign aid and economic development in Sub-Saharan Africa. It was observed that foreign aid does not significantly influenced GDP per capita in Sub-Saharan Africa, but after adjusting to the role of economic policy the relation converses. Another study by Refaei and Sameti (2015) investigates the association between foreign aid and per capita GDP growth of Iran by using annual data from the 1980 to 2012 period. The suggestion of this paper is that, aid is more productive than domestic resources and other capital inflows. Their results showed that, the effect of foreign aid on economic growth is positive, statistically significant, and substantial in the long run. The study by Basharat Hossain (2014), examined 33 years of data for the period 1980-2012 to show the effects of foreign aid on the economic growth of Bangladesh. The author created four different models for different government periods. This …show more content…
For example, Ram (2004) looked at the issue of effectiveness of foreign aid. He found no significant positive relationship between foreign aid and poverty reduction or foreign aid and economic growth in recipient countries even in the presence of good policy. According to the study of Boone (1996), aid has no impact on investment or growth in regular neo-classical growth models. Boone identified the main reason behind the ineffectiveness of aid. Politicians of recipients’ countries often try to adjust distortionary policies when they receive aid flows. But it is not optimal always to just adjust policies to stimulate growth. Since, poverty is not caused by only capital shortages. Rajan and Subramanian (2008) examined the effects of aid on growth in both cross-sectional and panel data. They found no significant relationship between aid and growth even after correcting some possible expected bias. They even found no better result for good policy or geographical environment. Thus they suggested rethinking about aid effectiveness. The paper by Liew, Mohamed and Mzee (2012) examined the impact of foreign aid on economic growth of East African countries over the period of 1985 to 2010. Their results suggested that foreign aid has significant negative effects on economic growth for these East African countries. Mbah and Amassoma (2014) studied the Linkage between Foreign Aid