Munich Personal RePEc Archive

Development thresholds of foreign aid effectiveness in Africa

Simplice A, Asongu (2012): Development thresholds of foreign aid effectiveness in Africa.

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Abstract

Purpose – This paper examines whether initial levels in GDP growth, GDP per capita growth and inequality adjusted human development matter in the impact of aid on development. In substance its object is to assess if threshold development conditions are necessary for the effectiveness of foreign-aid in Africa.

Design/methodology/approach – The panel quantile regression technique enables us to investigate if the relationship between development dynamics and development assistance differs throughout the distributions of development dynamics.

Findings – Two main findings are established. (1) The effectiveness of aid in economic prosperity (at micro and macro levels) increases in positive magnitude across the distribution. This implies high-growth countries are more likely to benefit from development assistance (in terms of economic prosperity) than their low-growth counterparts. (2) Existing levels of human development do not affect the manner in which foreign-aid negatively affects human emancipation. Thus the negative incidence of aid on human emancipation is almost similar across the human development distribution.

Practical implications – Two policy implications result. (1) Blanket policies on the aid-economic prosperity nexus are unlikely to succeed in Africa; thus policy measures should be contingent on prevailing levels of economic growth and tailored differently across high and low growth countries. (2) Common policies could be applied within the framework of the aid-human development nexus regardless of country-specific (existing) human emancipation levels.

Originality/value – This paper contributes to existing literature on the effectiveness of foreign-aid by focusing on the distribution of the dependent variables (development dynamics). It is likely that high and low growth countries respond differently to development assistance.

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