Assessment of the impact of foreign aid on economic growth: Evidence From 26 HIPC Sub-Sahara African countries

Abstract

The study examined the impact of foreign aid on economic growth using a sample of 26 HIPC countries from the Sub-Saharan Africa over the period 1980 to 2006. Using Random Effects method, the results show that firstly the initial level of income, investment, growth in labour force, government size, debt service and aid intensity are the main determinants of growth in SSA. Secondly the study finds evidence of a direct positive impact of aid intensity on economic growth being significantly different from zero. However, this direct impact does not compare favourably with the impact exerted by investment and government size on economic growth. Thus while the findings support moves by the G8 to double aid to developing countries including Africa, the need for Africa to industrialize remains a necessary precondition for the growth impact of aid to be meaningful.