Munich Personal RePEc Archive

Institutional Quality, Foreign Aid and Economic Performance

Younis, Fizza (2015): Institutional Quality, Foreign Aid and Economic Performance.

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This study investigates the role of foreign aid in promoting sustainable development while taking institutional quality of a country into account. Data is taken from four South Asian countries for the years 1976 to 2013. A linear dynamic panel regression model is estimated using Generalised Method of Moments (GMM) technique. Results show that foreign aid has a negative impact on sustainable development except in cases where GDP growth is very low. This suggests that South Asian countries should accept aid only when GDP is low. Furthermore, GDP is an important channel through which aid effects sustainable development. Trade openness, urbanisation and domestic savings rate have significant positive impact on achievement of sustainable development.

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