Effectiveness of aid modalities on government financing: With reference to Tanzania

Abstract

This study empirically tests the effectiveness of two main aid modalities, conventional project-type aid and modern program-type aid, on a country’s economic growth and its budget expenditures. With respect to growth, neither type of aid showed a significant positive effect. In terms of fiscal response, however, both modalities indeed appeared to increase public expenditures in partner countries. This study specifically examines the case of Tanzania, among the countries where program-based approach (PBA) is most active. Tanzanian data support the abovementioned empirical findings; the country’s PBA, a specifically results-based approach (RBA) as an advanced version of PBA, is indeed positively related to government expenditures.