The Impact of Foreign Aid on Economic Growth of Ethiopia (Through Transmission Channels)
International Journal of Business and Economics Research
Volume 4, Issue 3, June 2015, Pages: 121-132
Received: Apr. 28, 2015; Accepted: May 11, 2015; Published: May 21, 2015
Views 5150      Downloads 280
Author
Fentaye setargie Ejigu, Department of Economics, Adigrat University, Adigrat, Ethiopia
Article Tools
Follow on us
Abstract
The study has examined the impact of foreign aid on economic growth in Ethiopia through transmission channel (i.e through financing investment) over the period 1980/01 to 2013/14 using multivariate co integration analysis. The empirical result from the growth model shows that aid has a significant positive impact on growth in the long run. The empirical result from investment model also indicated that the positive and significant contribution of aid on investment in the long run. In other words the theoretical view of the gap models which is Aid can enhance growth by financing the saving gap is proven in this study. The growth equation further revealed that rainfall variability has a significant negative impact on economic growth. This study indicated also that the country has no problem of capacity constraint as to the flow of foreign aid.
Keywords
Foreign Aid, Economic Growth, Cointegration, VECM, Ethiopia
To cite this article
Fentaye setargie Ejigu, The Impact of Foreign Aid on Economic Growth of Ethiopia (Through Transmission Channels), International Journal of Business and Economics Research. Vol. 4, No. 3, 2015, pp. 121-132. doi: 10.11648/j.ijber.20150403.15
References
[1]
Alemayehu Geda, Befekadu D (2005), “Explaining African Economic Growth Performance”, The case of Ethiopia. AERC Working Paper 3.
[2]
Burnside C. and Dollar D. (1997), “Aid, Policies and Growth”, macroeconomics and growth Division policy research department, World Bank.
[3]
Burnside C. and Dollar D. (2000), “Aid, Policies and Growth", American Economic Review 90(4), 847-868.
[4]
Brooks, C. (2002), “Introductory Econometrics for Finance”, Cambridge: Cambridge University Press.
[5]
Dalgaard C. and Hansen H. (2000), “Aid, Growth and Good Policies”, credit research paper 00/17, Center for Research in Economic Development and International Trade University of Nottingham.
[6]
Dawit W. and Yemisrach T. (2001), “The Impact of Foreign Financing on Economic Performance in Ethiopia”. Paper Presented at the 11th Annual Conference on the Ethiopian Economy.
[7]
Dubary, R., N. Gemmel, & D., Greenway (1998) “New Evidence of the Impact of Foriegn Aid on Economic Growth”, Credit Research Paper 98/18, Center for Research in Economic Development & International trade, University of Nottingham.
[8]
Enders W. (1995), “Applied Econometric Time Series”, John Wiley and Sons, New York Engle R. and Granger C. (1987), “Co integration and Error Correction: Representation, Estimation and Testing”, Econometrica, 55: 251-278.
[9]
Gomanee, K., S. Girma, and O. Morrissey (2002). “Aid and Growth in Sub-Saharan
[10]
Africa: Accounting for Transmission Mechanisms”. CREDIT Research Paper 02/05.
[11]
Nottingham: School of Economics, University of Nottingham.
[12]
Gomanee, Karuna/Girma, Sourafel/Morrissey, Oliver (2005): “Aid and Growth in Sub-Saharan Africa: Accounting for Transmission Mechanisms”. The United Nations University World Institute for Development Economics Research (UNU-WIDER) Research Paper No. 60
[13]
Griffin K. and J. Enos (1970), “Foreign Assistance: Objectives and Consequences,” Economic Development and Cultural Change, Vol. 18: 313-327.
[14]
Gujarati D. (1995), “Basic Econometrics”, Mc Graw-Hill, Inc. 3rd edition.
[15]
Gujarati D. 2004, “Basic econometrics”, Mc Graw-Hill, Inc 4th edition.
[16]
Hansen H. and Tarp F. (2000), "Aid Effectiveness Disputed”, Journal of International Development, 12, 35-398
[17]
Hansen H. and Tarp F. (2001), "Aid and Growth Regressions", Journal of Development Economics, 64(2): 547-570.
[18]
Harris R. (1995), “Using Co integration Analysis in Econometric Modeling”, Prentice Hall/Harvester Wheat Sheaf.
[19]
Hendry D.(1997), “Dynamic Econometrics”, Oxford university press.
[20]
Johansen S. (1991), “Estimation and Hypothesis Testing of Co integration Vectors in Gaussia vector Autoregressive model”, Econometrica, 1551-1580
[21]
Lensink R. and Morrissey O. (2000), “Aid Instability as a Measure of Uncertainty and the Positive Impact of Aid on Growth”, Journal of Development Studies,
[22]
Lensik, R., & H., White(2001), “Are There Negative Returns to Aid”?, Journal of Development Studies Vol.37 Number 6.
[23]
Lucas, R. E. (1988), “On the Mechanics of Economic Development”, Journal of Monetary Economics, 22(1), pp. 3-42.
[24]
Malik G.(2008), “Foreign Aid and Economic Growth”, A co integration Analysis of the six Poorest African Countries , University of Western Sydney, Economic Analysis and Policy, Vol. 33 No. 2.
[25]
Martins, P. (2007), “The impact of Aid on Government Spending, Revenue and Domestic
[26]
Borrowing in Ethiopia,” International Poverty Centre Working Paper No. 41
[27]
MoFED, (2010), “annual report on the Ethiopian economy”.
[28]
Peter M. and Lamin B. (2010) “Ethiopia's Economic Growth Performance”, Economic Brief, Vol. 1, Issue 5
[29]
Ramsey, J. B. (1969), “Tests for Specification Errors in Classical Linear Least-Squares Regression Analysis”, Journal of the Royal Statistical Society, B, 31, 350-371.
[30]
Rajan, Raghuran & Arvind Submarian, (2006) “Aid & Growth: What Does The Cross-Country Evidence Really Show”? NBER Working Paper No 11513.
[31]
Romer, P. M., (1990), “Endogenous Technological Change”, the Journal of Political Economy. Vol. 98, No 5, Part 2: The Problem of Development: A Conference of the Institute for the Study of Free Enterprise Systems, pp. S71-S102.
[32]
Tassew Tadesse. (20011), “Foreign Aid and Economic Growth in Ethiopia. Semi-annual online Journal. Econ Res Guard 1(2):88-108”.
[33]
Weisskopf, T. (1972), “The Impact of Foreign Capital Inflow on Domestic Savings in Underdeveloped Countries”, Journal of International Economics, 2, 25-38.
ADDRESS
Science Publishing Group
1 Rockefeller Plaza,
10th and 11th Floors,
New York, NY 10020
U.S.A.
Tel: (001)347-983-5186