AN EMPIRICAL INVESTIGATION OF FOREIGN AID EFFECTIVENESS IN REDUCING POVERTY IN SOME SELECTED SADC COUNTRIES: 2005-2013 (original) (raw)
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Lapai Journal of Economics
Poverty, a deteriorating healthcare system and insufficient educational standards are among the major macroeconomic problems facing African countries. Foreign aid from Western countries to African countries has been hailed as one of the solutions to these problems. Thus, this study investigated the impact of foreign aid on poverty using a panel data set of 14 West African nations. Foreign aid was disaggregated according to the reason for which it was given while poverty was measured with three variables namely; poverty headcount, infant mortality, and literacy rate. Annual data was sourced from the WDI (2022), WGI (2022) and OECD (2022), scoped 2008-2020. Using a two-step system GMM, the study found that total aid insignificantly reduces poverty headcount in the presence of reduced corrupt practices. Furthermore, foreign aid allocated to health and education was found to lower infant mortality and improve literacy rates, respectively; however, these effects were only significan...
Historically, the economic justification for aid-flows to developing countries is to reduce poverty, which can be applied through direct targeting of the poor or indirectly through economic growth or pro-poor public expenditure. This study investigates whether or not aid has produced the anticipated result in 144 developing economies using panel data analysis. Our variables of choice for measuring aid impact on poverty involve monetary and non-monetary poverty measures. Overall, Aid is good for poverty reduction; more so when institutional quality is controlled for. Secondly, for the analysis studying the poverty impact of aid via Pro-poor Public Expenditure (PPE), PPE was partially analysed as a function of aid, GDP and institutional quality (CPIA) using OLS in first differences. Evidence suggests that increase in aid does not lead to higher pro-poor public spending. In turn, pro-poor public spending is only good for the dollarized poverty measures, but not wellbeing. Consequently, institutional quality and absence of corruption is vital for aid effectiveness.
Poverty and foreign aid: evidence from recent cross-country data
2005
This paper takes a fresh look, from a macro perspective, at the issue of aid effectiveness. An important point of departure for this study is that it adopts poverty reduction, as contrasted from economic growth, as the metric for measuring aid effectiveness. In conducting the empirical investigation, the paper experiments with a number of different regression equations and uses a new panel dataset on poverty.
Foreign Aid Policy and Sources of Poverty: A Quantitative Framework
IMF Staff Papers, 2007
This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. The econometric literature has been unable to establish a robust association between foreign aid and growth and poverty reduction. In this paper we argue that aid effectiveness must be assessed using methods that go beyond crosscountry regressions. We calibrate a dynamic general equilibrium model that is capable of generating large income gaps between rich and poor countries. The model quantifies three sources of poverty: (i) lack of access to international capital, (ii) low schooling and high fertility (a poverty trap), and (iii) antigrowth domestic fiscal policy. We analyze policies designed to address each source of poverty and estimate and compare the aid cost of implementing the different policies. The policies differ dramatically in the extent and timing of their growth effects, and in the aid cost of their implementation.
IMPACT OF FOREIGN AID AND INSTITUTIONAL QUALITY ON POVERTY IN SUB -SAHARAN AFRICAN COUNTRIES
The purpose of this study is to examine the impact of foreign aid on foreign direct investment nexus in Sub-Saharan African countries. The system generalized method of moment is applied on 33 countries covering the period of 2002 to 2020. The study reveals that official development assistance (0.012) is positive and statistically significant on poverty rate proxy by household final consumption expenditure in the Sub-Saharan African (SSA) region. Again, the study discovered a non-linear relationship between official development assistance and poverty rate. The rest of the study reveal that interaction term of institutional quality and official development assistance is positive and statistically significant on poverty rate proxy by household final consumption expenditure. The endogenous variables of institutional quality and Gross Domestic Product are positive and statistically significant on poverty rate in the SSA region The study concludes that foreign aid and institutional quality significantly impacted positively on poverty rate proxied by households' final consumption expenditure in SSA countries. Based on the findings, it is suggested that, Sub-Saharan African countries should use
The effectiveness of Foreign Aid on Poverty Reduction: the role of the political regime
2018
The present research aims to analyse the effectiveness of foreign aid in reducing poverty after controlling for the countries' political regime as well as other poverty determinants. Most literature focuses on the relation between aid and growth or political regime and growth. However, studies of the direct impact of foreign aid on poverty reduction are scarce, especially for the recent years and considering the influence of the political regime. Therefore, after a literature review in which we summarize the main contributions of the literature concerning the determinants of poverty as well as the influence of foreign aid on poverty alleviation, we estimate an econometric model using panel data for 102 countries between 1995 and 2015. In addition, we proceed to the estimation of the same model considering only a subsample of countries that follow the World Bank's classification of lowincome economies. The results obtained allow us to summarize this study in three main conclusions. In the first place, foreign aid is not effective in reducing poverty, neither in the full sample nor when we only consider the low-income countries. Secondly, political regime seems to have an important role in poverty alleviation, suggesting that a more democratic regime contributes directly to a decrease in poverty. Thirdly, in low income countries, only the GDP per capita seems to be significant in poverty alleviation, capturing the effects of all the other channels, even the impact of inequality or political regime. As a result, donor countries and institutions should be aware of the need to create and develop the institutional environment that promotes poverty alleviation and thus improves the living conditions of developing countries. The results suggest that this environment involves a more democratic political regime, where citizens can participate in the selection of their government.
This paper re-examines the effects of different types of foreign aid on poverty level in 8 West African countries between 1975 and 2010 by employing both the first and second generation econometrics methods of panel unit root test, cointegration test and empirical estimators with heterogeneous slopes. Our results suggest that total foreign aid and food aid impact positively on poverty, while technical aid reduces poverty. Apart from total foreign aid, none of the results was statistically significant. The results show negative relationship among poverty, life expectancy, foreign direct investment, per capita GDP and financial depth, but they were not statistically significant. This suggests that their impacts on poverty in West Africa were minimal.