Tadesse, Tasew (2011): Foreign aid and economic growth in Ethiopia.
Download (600Kb) | Preview
Abstract The study has examined the impact of foreign aid on investment and economic growth in Ethiopia over the period 1970 to 2009 using multivariate cointegration analysis. The empirical result from the investment equation shows that aid has a significant positive impact on investment in the long run. On the other hand, volatility of aid by creating uncertainty in the flow of aid has a negative influence on domestic capital formation activity. Foreign aid is effective in enhancing growth. However, the aid-policy interaction term has produced a significant negative effect on growth implying that bad policies can constrain aid effectiveness. The growth equation further revealed that rainfall variability has a significant negative impact on economic growth as the economy. This study indicated also that the country has no problem of capacity constraint as to the flow of foreign aid.
|Item Type:||MPRA Paper|
|Original Title:||Foreign aid and economic growth in Ethiopia|
|English Title:||Foreign Aid and Economic Growth in Ethiopia|
|Keywords:||foreign aid, policy, economic growth, cointegration, VECM, Ethiopia|
|Subjects:||F - International Economics > F3 - International Finance > F35 - Foreign Aid
C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies
|Depositing User:||tasew tadesse|
|Date Deposited:||13. Oct 2011 13:41|
|Last Modified:||12. Feb 2013 01:46|
BIBLIOGRAPHY African Development Bank (2003), African Economic Outlook, AfDB.
Alemayehu G.(2001),Macroeconomic Performance in Post-Derg Ethiopia, North East African studies, vol.8, No.1,pp.159-204. Alemayehu G. and Befekadu, D.(2005),Explaining African Economic Growth Performance: The case of Ethiopia, AERC Working Paper 3.
Alesina A. and Dollar D.(1998), Who Gives Foreign Aid to Whom and Why, NBER Working paper 6612.
Arndt C., Jones S., and Tarp F.(2009), Aid and Growth: have we come full circle, UNU-WIDER, Discussion paper No.2009/05.
Bacha E. (1990), A Three Gap Model of Foreign Transfer and the GDP Growth Rate in Developing countries , Journal of Development Economics 32(2).
Bahttari B.(2005), Effectiveness of Foreign Aid: The case of Nepal , PhD Thesis, University of Western Sydney.
Barro R. (1996), Determinants of Economic Growth: A Cross-country Empirical study, NBER Working Papers 5698.
Basu A.,Calamtsis E.,and Ghura D.(2000), Promoting Growth in Sub-Saharan Africa: Learning What Works, Economic Issues No.23,IMF.
Boone P.(1996), Politics and the Effectiveness of Foreign aid, European Economic Review 40, Vol. 40, pp. 289-328. Boon T. (2000), Saving, investment and capital flows: an empirical study of the Asian economies, working paper 3.2000. Burnside C. and D. Dollar (1997), Aid, policies and growth, Policy Research Working Paper 1777, The World Bank, Development Research Group, Washington, D. C.
Burnside, C. and D. Dollar (2000), Aid, policies, and growth, American Economic Review.
Cassen R. et al. (1986), Does Aid Work? Clarendon Press, Oxford.
Chauvet L. and Guillaumont P.(2003), Aid and Growth Revisited: Policy, Economic Vulnerability and Political Instability”, CERDI.
Chenery, H. B. and A. M. Strout (1966), Foreign assistance and economic development, American Economic Review 56, 679–733.
Chen P. and Chiving H.(2007), Testing weak exogeneity in cointegrated system.
Chervin M. and Wijnbergen S.(2010), Economic Growth and the Volatility of Foreign Aid, Tinbergen Institute Discussion Paper-002/2.
Collier P. and Dollar D.(2002), Aid Allocation and Poverty Reducion, European Economic Review, vol.26, pp.1475-1500.
Collier p. and Hoeffler A(2002), Aid, Policy and Growth in Post-Conflict Societies ,World Bank Research Working Paper 2902.
Dalgaard C. and Hansen H.(2000), On Aid, Growth and Good Policies, CREDIT Research paper 00/17, Center for Research in Economic Development and International Trade, University of Nottingham.
Dalgaard C., Hansen H. and Tarp F. (2003), On the Empirics of Foreign Aid and Growth, EPRU, Institute of Economics, University of Copenhagen.
Denkabe G. (2003), Policy, Aid and Growth: A Threshold Hypothesis, Department of Economics, New York University.
Dollar D. and Easterly W.(1997), The Search for the Key: Aid , Investment and Policies in Africa, Policy Research Working Paper 2070,The World Bank-Development Research Group.
Dowling J. and Hiemenz U. (1983), Aid, Savings and Growth in the Asian Region, Journal of the Developing Economies, XXXVI-1.
Durbarry, R., N. Gemmell, and D. Greenaway (1998), New evidence on the impact of foreign aid on economic growth, CREDIT Research Paper 98/8, University of Nottingham.
Easterly W.(1999), The Ghost of Financing Gap: Testing the Growth Model used in the International Financial Institutions, Journal of Development Economics 60(2) ,423-438.
Easterly W. (2003), Can Foreign Aid Buy Growth, The Journal of Economic Perspectives, vol.17, No.3:23-48. Easterly W. et al (2004), New Data, New Doubts: Revisiting Aid, Policies and Growth, CGD Working paper, Center for Global Development, Washington, D.C.
Easterly, W., R. Levine and D. Roodman (2003), New Data, New Doubts: Revisiting ‘Aid, Policies and Growth’, CGD Working Paper No. 26, June 2003, Centre for Global Development, Washington, D.C. (forthcoming American Economic Review).
Enders W. (1996), Applied Econometric Time Series, John Wiley and Sons Inc.
Feeney S. (2005), The Impact of Foreign Aid on Economic Growth in Papua New Guinea, the Journal of Development studies,vol.41, No.6,pp.1092-1117.
Fissiha S. (2006), Impact of Conditionality on Aid Effectiveness, Vienna University of Economics and Business Administration, PhD Thesis.
Griffin K. (1970), Foreign Capital: A Reply to Some Critics, Bulletin of the Oxford University Institute of Economics and Statistics, Vol. 32, No. 2, pp. 156-161.
Griffin, K. and J. Enos (1970), Foreign Assistance: Objectives and Consequences,Economic Development and Cultural Change, Vol. 18, pp. 313-327.
Girma S., Gomanee K., and Morrissey O.(2005), Aid and Growth: Accounting for Transmission Mechanism in Sub-Saharan Africa, UNU-WIDER, Research Working Paper No.2005/60.
Gujarati D.(2004), Basic Econometrics, McGraw-Hill.Inc.4th ed. Gupta, K. L. (1970). Foreign capital and domestic savings: A test of Haavelmo's hypothesis with cross-country data: A comment. Review of Economics and Statistics 52, 214-216.
Gupta L. and Islam M. (1983), Foreign Capital, Savings and Growth: An International Cross-Section Study, Boston, D.Riedel Publishing Company.
Hansen H. and Tarp F.(2001), Aid and Growth Regressions, Journal of Development Economics.
Hansen H. and Tarp F.(2000), Aid Effectiveness Disputed, Journal of International Development 13.
Harris R.(195), Using Cointegration Analysis in Econometric Modeling, Prentice Hall/Harvester Wheat Sheaf.
Hendry D.(1997), Dynamic Econometrics, Oxford university press.
Hendry D.(1994), The Encompassing Implications of Feedback versus Feedforward Mechanism in Econometrics-Testing Exogeneity, Erricson N. and Irons J.ed., Oxford University Press.
Hjertholm P., Laursen J. And White H.(1998), Macroeconomic Issues in Foreign Aid, DREG, University of Copenhagen.
Islam M. (2005), Regime Changes, Economic Policies and the Effect of Aid on Growth, the Journal of Development Studies, vol.41, No.8, pp.1467-1492.
Jayaraman T. and Choong C. (2006), Aid and Economic Growth in Pacific Island Countries: An Empirical study of Aid effectiveness in Fiji, Perspectives on Global Development and Technology, vol.5, issue 4.
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.
Lensink R. and White H.( ), Are there Negative Returns to Aid?, Journal of Development Studies, Vol.37, No.6, pp.42-64.
Levy V. (1988), Aid and Growth in Sub-Saharan Africa: The Recent Experience,European Economic Review, Vol. 32, pp. 1777-1795.
Madalla G.(1992), Introduction to Econometrics, Macmillan Publishing Company, New York.
Malik G.(2008), Foreign Aid and Economic Growth: A cointegration Analysis of the six Poorest African Countries , University of Western Sydney, Economic Analysis and Policy, Vol.33 No.2.
Martins P.(2007), The Impact of Foreign Aid on Governemnt Spending, Revenuw and Domestic Borrowing in Ethiopia, International Poverty Centre, working paper, no.41.
M’Amanja D. and Morrissey O. (2003), Fiscal Aggregates, Aid and Growth in Kenya: A Vector Autoregressive Analysis, School of Economics, University of Nottingham.
McGillivray et al (2005), It works; It doesn’t; It can, But that Depends…:50 years of Controversy over the Macroeconomic Impact of Development Aid, UNU-WIDER, Research Paper No. 2005/54.
McGillivray M. and Feeny S. (2008), Aid and Growth in Fragile States, UNU-WIDER, Research Paper No.2008/03.
Melesse G.(2005), External Debt and Economic Growth in Ethiopia, African Institute for Economic Development and Planning.
Mesfin G.(2007), Fiscal Aggregates, Aid and Growth in Ethiopia: A Vector Autoregressive Analysis, unpublished M.Sc. thesis, AAU.
Mosley P. (1980), Aid, savings and growth revisited, Oxford Bulletin of Economics and Statistics.
Mosley P. (1987), Overseas Aid: Its Defense and Reform, Wheatsheaf, Brighton.
Mosley et al (1987), Aid, the Public sector and the Market in Less Developed Countries, Economic Journal, Vol. 97, pp. 616-641.
Ncube M.,Lufumpa C.and Ndikumana (2010), Ethiopia’s Economic Growth Performance: Current Situation and Challenges, Economic Brief vol.1,Issue5.
Papanek, G. (1972),The effect of aid and other resource transfers on savings and growth in less developed countries, Economic Journal.
Papanek G. (1973), Aid, Private Foreign Investment, Savings and Growth in Less Developed Countries, Journal of Political Economy, Vol. 81, pp. 120-130.
Radelet S., Clemens M. and Bhavnani R.(2004), Aid and Growth: the current debate and some new evidence , Finance and Development, a quarterly magazine of the IMF, vol.42, No.3.
Roodman D. (2003), The Anarchy of Numbers: Aid, Development and Cross-country Empirics, CGD Working Paper No. 32, Centre for Global Development, Washington, D.C.
Scheimidt H.,Serven L.and Solimano A.(1996), Saving and Investment: Paradigms, Puzzles and Policies, The world Bank Research Observer.
Tanna S. and Tapaiboul K.(2002), Human capital, Trade, FDI and Economic growth in Thailand: What causes what.
Tarp F. (2009), Aid Effectiveness, UNU-WIDER, Working paper 2009/05.
Taylor L. (1994), Gap models. Journal of Development Economics 45:17-34.
Tolessa A.(2001), The Impact of Foreign Aid on Domestic Saving, Investment and Economic Growth: The Case of Ethiopia, Unpublished M.Sc Thesis, AAU.
Tsikata T. (1998), Aid Effectiveness: A Survey of the Recent Empirical Literature” International Monetary Fund, Policy Development and Review Department, PPAA/98/1.
White H. (1992), The Macroeconomic Impact of Development Aid: A Critical Survey” Journal of Development Studies, Vol. 28, No. 2, pp. 163-240.
Wondwesen T.(2003), An Empirical Investigation of the Aid-Growth Relationship in Ethiopia, Unpublished M.Sc. thesis, AAU.
World Bank(1998), Assessing Aid. What Works, What Doesn’t, and Why, World Bank Policy Research Report, Oxford: Oxford University Press.
Zhou T., Bonham C. and Gangnes B.(2007), Modeling the supply and demand for Tourism: a fully identified VECM approach, working paper No.07-17.