Foreign Aid – Economic Growth Nexus: A Systematic Review of Theory & Evidence from Developing Countries

Dynamic Research Journals' Journal of Economics & Finance, 2(7): 01-16.

16 Pages Posted: 11 Aug 2017

See all articles by Thabani Nyoni

Thabani Nyoni

University of Zimbabwe

Wellington Garikai Bonga

Great Zimbabwe University

Date Written: August 9, 2017

Abstract

What is the relationship between foreign aid and economic growth? This is probably one of the most famous questions in the foreign aid – economic growth debate. Whether this question has been sufficiently answered remains to be known. Developing nations have been and continue to be known to receive help from developed countries. Now, the reason for which the developed countries give aid is another aspect on its own. In this study, we look at the foreign aid - economic growth nexus by systematically reviewing both theory and evidence from 33 studies carried out in over 100 developing countries around the world. Theory and evidence reveals that the foreign aid - economic growth nexus is ambiguous. However, our analysis indicates that foreign aid is positively related to economic growth in most developing countries and therefore developing countries cannot afford to turn a blind eye at the donor community. We also note with kin interest that in developing countries where there is excessively bad governance and rampant corruption, recipient governments paradoxically lament over aid ineffectiveness. What a scenario! The study, amongst other policy prescriptions, advises recipient governments to use aid for its intended purposes and stop playing the blame-game at the expense of their poor and the ailing economies.

Keywords: Aid Policy, Developing Countries, Economic Growth, Foreign Aid.

JEL Classification: E21, E22, F21, F34, F35, F42, F43, G28, H54, H81, H84, I22, O24, O43, P33, P35, P45, R53.

Suggested Citation

Nyoni, Thabani and Bonga, Wellington Garikai, Foreign Aid – Economic Growth Nexus: A Systematic Review of Theory & Evidence from Developing Countries (August 9, 2017). Dynamic Research Journals' Journal of Economics & Finance, 2(7): 01-16.. Available at SSRN: https://ssrn.com/abstract=3015807

Thabani Nyoni (Contact Author)

University of Zimbabwe ( email )

Mashonaland
Zimbabwe

HOME PAGE: http://www.uz.ac.zw

Wellington Garikai Bonga

Great Zimbabwe University ( email )

P. O. Box 1235
Masvingo
Masvingo, Masvingo 00263
Zimbabwe

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