Donor intervention, economic growth and poverty reduction : the case of Sierra Leone

Abstract

In capital-scarce low income economies, the lack of attractiveness to private foreign investment implies that the only readily available source of external financing for economic development has to come from foreign aid which normally comes with an altruistic motive. However, despite long history of aid-giving to low income countries and especially Sub-Saharan Africa, evidence of effectiveness of such assistance has remained debatable, particularly with the dominance of cross-country studies in such enquiry. With yet no existing country study for Sierra Leone, a typical aid dependent country, this research investigates the relationship between donor intervention (in their aid disbursement) and the development outcomes of economic growth and poverty reduction in the country. In conducting such an enquiry, the study proposed three objectives. The first examines the relationship between aid and economic growth. The second objective investigates the relationship between aid and poverty reduction considering two variants of poverty reduction: improvement of pro-poor growth and aggregate human welfare. The final objective assesses the effect of domestic politics on aid?s effectiveness in improving human welfare.Arising from a pluralistic analytical framework involving a triangulation of econometric estimation approaches complemented with qualitative enquiry, the study finds that aid to Sierra Leone is significant in promoting economic growth in the country. In terms of the impact on poverty, the results show that foreign aid to Sierra Leone has significantly improved long-run pro-poor growth in the country, but this impact could not be confirmed in the short-run. With respect to the other strand of poverty, the study finds that though aid may have not improved human well-being in Africa, it is found to significantly improve human development in Sierra Leone, though the evidence could not support its reduction of infant mortality rate as a second indicator of human well-being. Finally, for the investigation of the link between aid, politics and human development in Sierra Leone, the study finds that though aid is significant in directly improving human development in the country, yet pro-democratic politics (as against autocratic regimes) can also be good a policy option for aid?s impact on human development in the country. Accounting for disaggregation bias of foreign aid, the study finds that whilst grants seem to consistently improve economic growth, pro-poor growth and human welfare, the study could not find strong evidence to suggest that technical assistance and loans likewise improve economic development the country. The impact of food aid on pro-poor growth is found to be moderate in conformity with the study?s hypothesis.Concluding from the analysis, it is evident in the case of Sierra Leone that the supplemental theories largely hold that foreign aid is vital in the promotion of a country?s economic development. Hence, the intervention of donors in the economy of Sierra Leone has not seemed to be in vain, but has rather proved to be largely useful. It implies that Sierra Leone?s persistent poverty characterisation amidst notable donor presence and participation in the country?s economy has little to do with the fact that foreign aid has not been effective in promoting the country?s economic development, but it may however be that the magnitude of the effect may not have been that high to completely eradicate poverty. The study?s identification of the most effective types of aid as well the realisation of political stability and democracy for enhanced effectiveness of aid in the country could be crucial if the economic significance of foreign aid is to be improved in Sierra Leone.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 2 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.