The long-run macroeconomic effects of aid and disaggregated aid in Ethiopia

Abstract

This article investigates the long-run macroeconomic effects of aid and disaggregated aid flows in Ethiopia, currently the world's largest recipient of official development assistance, for the period 1960-2009. The results show that aid affects gross domestic product (GDP), investment and imports positively, whereas it is negatively associated with government consumption. Our results concerning the impacts of disaggregated aid stand in stark contrast to earlier work. Bilateral aid increases investment and GDP and is negatively associated with government consumption, whereas multilateral aid is only positively associated with imports. Grants contribute to GDP, investment and imports, whereas loans affect none of the variables. Finally, there is evidence to suggest that multilateral aid and loans have been disbursed in a procyclical fashion. © 2013 John Wiley & Sons, Ltd.