Complementarity of Foreign Aid and Domestic Savings as Drivers of Economic Growth: Evidence from WAMZ1 Countries

Abstract

This study examined the impact of foreign aid and domestic savings on economic growth in the WAMZ countries, while including control variables: domestic investment, labour force, trade openness, financial liberalization and foreign direct investment. Panel Data Analysis and GMM were compared for the period 1980 and 2012. The paper found that economic growth obviously deteriorates with foreign aid and hence does not complement the role of saving on economic growth of the WAMZ countries. Savings on the other hand was found to be positively significant in increasing economic growth in the sub-region. Labour force and financial liberation (M2) and FDI exhibit economic growth. A policy implication of the result is that the countries in the West African Monetary Zone should be wary in soliciting for foreign aid. If foreign aids become expedient, then it should be channeled to productive ventures.

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