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Testing the Foreign Aid-led Growth Hypothesis in West Africa

Author

Listed:
  • Yakama Manty Jones

    (Department of Management, Birkbeck College University of London)

Abstract
This paper assesses the foreign aid-led growth hypothesis in a panel of West African countries using panel cointegration techniques ( Pendroni Residual Cointegration Test, Error Correction Model, Johansen Fisher Panel Cointegration Test) and then on a country-by-country basis using time series cointegration techniques (Engle-Granger test, Error Correction Model , Johansen system cointegration test). The panel cointegration results indicate a long run relationship between aid and growth in the whole panel. For the individual countries, at least one test showed evidence of this long run relationship. Granger causality tests were done for the whole panel and then for each country individually to establish direction of causality between foreign aid and economic growth. There is evidence of unidirectional causality from foreign aid to economic growth, from economic growth to foreign aid and there are cases where both variables are independent. A simplified variation of the Chenery and Strout Two-Gap Model was estimated to test the impact of foreign aid and selected explanatory variables on economic growth in countries where aid was found to granger cause growth and this impact varied from country to country.

Suggested Citation

  • Yakama Manty Jones, 2013. "Testing the Foreign Aid-led Growth Hypothesis in West Africa," Management Working Papers 3, Birkbeck Department of Management, revised Apr 2013.
    • Handle: RePEc:img:manwps:3
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    File URL: https://eprints.bbk.ac.uk/8461/1/8461.pdf
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    References listed on IDEAS

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    2. Workneh, Migbaru Alamirew & Francken, Nathalie, 2015. "A review of the impact of foreign aid on domestic saving," MPRA Paper 92174, University Library of Munich, Germany, revised 13 Feb 2019.
    3. Tefera, Mamo G & Odhiambo, Nicholas M, 2022. "The impact of foreign aid on economic growth in Africa: Empirical evidence from low-income countries," Working Papers 29830, University of South Africa, Department of Economics.
    4. Hervé Nenghem Takam & Roger Tsafack Nanfosso, 2024. "Importance of official development assistance in improving the economic cycles of Economic and Monetary Community of Central Africa countries," SN Business & Economics, Springer, vol. 4(7), pages 1-22, July.
    5. R. Santos Alimi, 2015. "Estimating Consumption Function under Permanent Income Hypothesis: A Comparison between Nigeria and South Africa," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 5(11), pages 285-298, November.
    6. Workneh, Migbaru Alamirew, 2018. "Poverty and unemployment in Spain during the 2008's financial crises," MPRA Paper 92145, University Library of Munich, Germany.

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