Foreign Aid’s Effect on Economic Growth, New Results from WAEMU’s Countries

Badamassi Aboubacar^1*, Deyi Xu¹, Amadou Maiga Ousseini²

¹School of Economics and Management, China University of Geosciences, Wuhan, China.
²School of Economics and Trade, Hunan University, Changsha, China.

DOI: 10.4236/tel.[phone]                

Abstract

This study investigates whether foreign aid (AID) has a significant influence on economic growth in WAEMU’s (West African Economic and Monetary Union) countries. We use two (2) types of aid data: aggregate aid and disaggregate aid (aid in education, aid in agriculture, aid in trade policies and regulations and humanitarian aid) to run two (2) different regressions. Both the within-dimension and between-dimension estimators reveal that in the long run, the effect of AID on economic growth is heterogeneous across sectors and aid in agriculture, aid in trade policies and regulations as well as aid in education encourages economic growth.

Keywords

Foreign Aid, WAEMU, Within-Dimension Estimators, Between-Dimension Estimators

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1]	Burnside, C. and Dollar, D. (2000) Aid, Growth, the Incentive Regime, and Poverty Reduction. In: Gilbert, C.L. and Vines, D., Eds., The World Bank: Structure and Policies, Cambridge University Press, Cambridge, 3, 210-227. http://dx.doi.org/10.1017/CBO9780511560002.009
[2]	Hansen, H. and Tarp, F. (2000) Aid Effectiveness Disputed. In: Tarp, F. and Hjertholm, P., Eds., Foreign Aid and Development: Lessons Learnt and Directions for the Future, Routledge, London, 103-128. http://dx.doi.org/10.1002/(sici)1099-1328(200004)12:3<375::aid-jid657>3.0.co;2-m
[3]	Addison, T., et al. (2005) Aid, Debt Relief and New Sources of Finance for Meeting the Millennium Development Goals. Research Paper, UNU-WIDER, United Nations University (UNU).
[4]	Gomanee, K., et al. (2005) Aid and Growth in Sub-Saharan Africa: Accounting for Transmission Mechanisms. Journal of International Development, 17, 1055-1075. http://dx.doi.org/10.1002/jid.1259
[5]	Radelet, S., et al. (2004) Aid and Growth: The Current Debate and Some New Evidence. Center for Global Development.
[6]	Rajan, R.G. and Subramanian, A. (2005) Aid and Growth: What Does the Cross-Country Evidence Really Show? National Bureau of Economic Research, Cambridge. http://dx.doi.org/10.3386/w11513
[7]	Karras, G. (2006) Foreign Aid and Long-Run Economic Growth: Empirical Evidence for a Panel of Developing Countries. Journal of International Development, 18, 15-28. http://dx.doi.org/10.1002/jid.1187
[8]	Asiedu, E. and Nandwa, B. (2007) On the Impact of Foreign Aid in Education on Growth: How Relevant Is the Heterogeneity of Aid Flows and the Heterogeneity of Aid Recipients? Review of World Economics, 143, 631-649. http://dx.doi.org/10.1007/s10290-007-0125-9
[9]	Asteriou, D. (2009) Foreign Aid and Economic Growth: New Evidence from a Panel Data Approach for Five South Asian Countries. Journal of Policy Modeling, 31, 155-161. http://dx.doi.org/10.1016/j.jpolmod.2008.04.012
[10]	Maddala, G.S. and Wu, S. (1999) A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test. Oxford Bulletin of Economics and Statistics, 61, 631-652. http://dx.doi.org/10.1111/1468-0084.61.s1.13
[11]	Im, K.S., et al. (2003) Testing for Unit Roots in Heterogeneous Panels. Journal of Econometrics, 115, 53-74. http://dx.doi.org/10.1016/S0304-4076(03)00092-7
[12]	Pedroni, P. (1999) Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors. Oxford Bulletin of Economics and Statistics, 61, 653-670. http://dx.doi.org/10.1111/1468-0084.61.s1.14
[13]	Pedroni, P. (2001) Purchasing Power Parity Tests in Cointegrated Panels. Review of Economics and Statistics, 83, 727-731. http://dx.doi.org/10.1162/003465301753237803
[14]	Kao, C. (1999) Spurious Regression and Residual-Based Tests for Cointegration in Panel Data. Journal of Econometrics, 90, 1-44. http://dx.doi.org/10.1016/S0304-4076(98)00023-2
[15]	Kao, C. and Chiang, M.H. (2001) On the Estimation and Inference of a Cointegrated Regression in Panel Data. Advances in Econometrics, 15, 179-222. http://dx.doi.org/10.1016/S0731-9053(00)15007-8