Drivers of economic growth in Ethiopia: Does foreign aid and policy complementarity matter?

Terefe, Kitessa Delessa (2017): Drivers of economic growth in Ethiopia: Does foreign aid and policy complementarity matter? Published in: Journal of Economics and International Finance , Vol. 10, No. 8 (31 August 2018): pp. 95-110.

Abstract

The main research question here is to address drivers of economic growth in Ethiopia using the time series data from 1970 to 2016 where the complementarity of aid and policy index is critically assessed. The empirical result from cointegration test confirms the existence of long run relationship among the variables entered in the per capita growth equation. In the long run, foreign aid inflow entered alone has a positive and significant impact on economic growth. Again, aid interacted with policy appears to have a positive contribution showing that both aid and policy are complementary to each other. The results of the study calls for devising policies for checking the apparent link and dynamics between population growth and economic growth, capacitating and maintaining institutional qualities, and proper allocation of financial and infrastructural resources to enhance human capital, comprehensible selection and priority for productive public investment for foreign aid to be more effective, putting more efforts to achieve macroeconomic stabilities via use of prudent fiscal, monetary and trade polices used in amalgamations to complement both aid and policy.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic growth, policy index, foreign aid.
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General; C - Mathematical and Quantitative Methods > C8 - Data Collection and Data Estimation Methodology ; Computer Programs > C82 - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data ; Data Access; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates; F - International Economics > F3 - International Finance > F35 - Foreign Aid

References

Assessing Aid, What Works, what doesnot and Why. Washington DC: The World Bank.

Bacha, E. (1990). A Three-Gap Model of Foreign Transfers and the GDP Growth Rate in Developing Countries. Journal of Development Economics, 32, 279-296.

Balogun, P. (2005, May). Evaluating progress towards harmonization, Department for Internaional developement.

Brad, S. (2014). Money supply and economic growth in developed nations: An empirical analysis. Journal Applied Business and Economics, 16 (14).

Burnside, C., & Dollar, D. (2000). Aid Policies and Growth. American Economic Review, 90, 847-868.

Burnside, C., & Dollar, D. (2000). Aid,Policies and Growth. American economic review , 847-868.

Cassen, R., & Associates. (1994). Does Aid Work? Oxford Clarendo Press.

Chenery, & A, H. a. (1966). Foreign Assistance and Economic Development. The American Economic Review, 56, 679-733.

Dwyer, & P., G. (2015). Johansen Test for Cointegration. Dwyer, G., & Hafer, R. (1988, May/June 3-17). Is money irrelevant? Federal Reserve Bank of St. Lous Review.

Edwin, D., & Shajehan, H. (2001). Determinants of Economic growth: Panel data approach.

Feder, G. (1983). On exports and economic growth. Journal of development studies , 59-73.

Fosu, A. (n.d.). Export composition and the impact of export growth on developing economies. 67-71.

Freeny, S., & McGillivray. (2008). Aid allocation to fragile states:absorptive capacity constrains. Journal of international development, 20 (7), 1031-1050.

Guillaumont, P. (2008). To move out of the trap-The least developed countries. Pari: Economica.

Gujarati, N. (2004). Basic Econometrics (4th edition ed.). The McGraw-Hill Companies.

Humna, A. a. (2017). Threshold effects of human capital: Schooling and Economic Growth.

Islam, M. (2002). Political regimes and the effect of foreign aid on economic growth. Journal of developing areas, 37 (1), 35-53.

Jeff, K. a. (1994). Where in world is population growth bad?

Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on Cointegration with application to the demand for money. Oxford University, England: Oxford Bulletin of Economics and Statistics.

Karras, G. (2006). Foreign aid and the long run economic growth: empirical evidence for a panel of developing countries. Journal of International Development, 18, 15-28.

Lensink, R. a. (1999). IS there an aid Laffer curve? Credit Working Paper No.99/6.

Mercieca, P. (1990). Aid and economic growth in developing countries: A literature review.

Mercieca, P. (2010). Aid and economic growth in developing countries: A literature review.

Mosley, P. a. (1987). Aid, the Public Sector and The Market in Less Developed Countries. Economic Journal, 97, 616-641.

Pritchett, L. (2001). Where has all the education gone? The World Bank Economic Review, 15 (3), 367-391.

Saima, L., & Temesgen, K. (2016). Aid-macroeconomic policy environment-growth nexus: Evidence from selected African counties.

Taylor, L. (1990). Three-Gap Model, Problems of Developing Countries in the 1990s. World Bank, Washington Dc, 55-90.

Verbeek, M. (2004). A guide to modern Econometrics (2nd Edition ed.). Rotterdam: John Wiley and Sons, Ltd.

White, H. (1992). Macroeconomic impact of development aid. The Journal of Development Studies, 28 (2), 163-240.

World Bank. (1998). Assessing Aid, What Works, What Does not and Why. Washington DC: The World Bank.