The impact of foreign aid on economic growth:Emperical evidence from Ethiopia (1974-2011) using ARDL approach

Abstract

This paper investigates the impact of foreign aid on economic growth in Ethiopia using time series data for the period 1974 to 2011. Following the most recent literatures, the paper examines whether aid effectiveness is conditional on stable macroeconomic policy environment using the Autoregressive Distributed Lag (ARDL) approach to co-integration proposed by Pesaran and Shin [1997]. Results provide that the negative coefficient of separate foreign aid in regression model shows aid has negative impact on economic growth, but the positive coefficient of aid policy index interaction shows that aid has positively contributed to economic growth in Ethiopia if supplemented with stable macroeconomic policy environment.