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
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Fentaye setargie Ejigu, Department of Economics, Adigrat University, Adigrat, Ethiopia
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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.
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
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