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IMPACT OF FOREIGN AID ON ECONOMIC GROWTH

Gitaru, Kelvin (2015): IMPACT OF FOREIGN AID ON ECONOMIC GROWTH.

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Abstract

There is significant increase in foreign inflows, but the economic growth achieved by many Sub Saharan African countries has not been satisfactory. Thus, the actual role of foreign capital inflow has been an area of controversy. Kenya has been one of the major recipients of international aid. It is evident that despite notable donor intervention in the country‘s economy, less economic growth and poverty remain inherent for many years. Despite this paradoxical scenario, there are few researches capturing the attention of assessing the effectiveness of aid in such a country in order to find out whether aid has been effective, or whether, in fact, the persistent poverty in such an aid-dependent country is not the result of the ineffectiveness of aid. So far done studies are controversial. The study by Abeba (2002) in Ethipia for example shows that aid has negative impact on economic growth while the study by Tasew (2010) and Yohannes (2011) found that aid has positive impact on economic growth. All developing countries, especially in sub-Saharan Africa, are faced with low savings and a narrow lent widening tax base. This problem is coupled by narrow and diminishing export earnings as a result of deteriorating terms of trade. Thus the requisite investments for pasture GDP growth are inadequate.

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