Impact of Foreign Aid on Economic Growth in Sierra Leone : Empirical Analysis

Abstract

This paper examines the impact of foreign aid on economic growth in Sierra Leone, a country where an empirical econometric study on aid effectiveness is yet to exist. Using a triangulation of approaches involving the ARDL bounds test approach and the Johansen maximum likelihood approach to cointegration for the period 1970-2007, we find that foreign aid has a significant contribution in promoting economic growth in the country. This finding is found to be robust across approaches and specifications. Whilst aid may have been associated with improvement in economic growth in the country, its impact during the period of war is found to be either weak or non-existent. Further, aid during the pre-war period is found to be marginally more effective than aid during the post-war period. The latter results suggest that the impact of aid may change with time.

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