FOREIGN AID AND ECONOMIC GROWTH: NEW EVIDENCE FROM PANEL COINTEGRATION

Abdulnasser Hatemi‐J · Manuchehr Irandoust

50 citations0/0 files storedRePEc: Research Papers in Economics

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International Development and Aid Monetary Policy and Economic Impact Economic Growth and Productivity

Abstract

The relationship between foreign aid and economic growth is investigated for a panel of developing countries (Botswana, Ethiopia, India, Kenya, Sri-Lanka, and Tanzania) over the period 1974-1996. The results reveal that the variables contain a panel unit root and they cointegrate in a panel perspective. The long-run elasticities (close to one for most countries) show that foreign aid has a positive and significant effect on economic activity for each country in the sample. A policy implication which may be drawn from the study is that foreign capital flows can have a favorable effect on real income by supplementing domestic savings.

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References

2003Testing for unit roots in heterogeneous panels 2002Unit root tests in panel data: asymptotic and finite-sample properties 1999Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors 2004PANEL COINTEGRATION: ASYMPTOTIC AND FINITE SAMPLE PROPERTIES OF POOLED TIME SERIES TESTS WITH AN APPLICATION TO THE PPP HYPOTHESIS n.d.Aid, Policies, and Growth 1967Foreign Assistance and Economic Development 1970Foreign Assistance: Objectives and Consequences 1985Testing the Random Walk Hypothesis: Power versus Frequency of Observation

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