Foreign Aid, Institutions and Economic Development in West Africa: Implications for Post-2015 Development Agenda
30 Pages Posted: 3 Oct 2014 Last revised: 25 Oct 2014
Date Written: October 2, 2014
This paper examines the relationship between foreign aid and income per capita using a simple augmentation of the neoclassical cross-country specification for Western Africa states. The study disaggregated aid into seven categories (agriculture, communication, industrial, engineering, education, health and food security) and shown that in most cases, aid becomes significant when conditioned on sound macroeconomic policy whereas institutional quality and infrastructural development do not significantly influence the aid-growth relation. Similarly, the study established a decreasing return to aid, as the marginal impact of aid on growth appears negligible in all likelihood. Likewise, trade structure and financial depth do not meaningfully enhance economic development in the region. We conclude by stressing the need to develop absorptive capacity, ensure sound pro-development policies and urge donors to systematically link aid to performance.
Keywords: Foreign aid, Pro-development Policy, System GMM, West Africa
JEL Classification: F35, C23, G18, O1, P48
Suggested Citation: Suggested Citation