Increasing Foreign Aid for Inclusive Human Development in Africa
In the light of evidence that poverty has been decreasing in all regions of the world with the exception of Africa, where about 45% of countries in sub-Saharan Africa did not achieve the Millennium development goal extreme poverty target, this study assesses whether increasing foreign aid improves inclusive human development. The investigation is on 53 African countries for the period 2005–2012. The empirical analysis is based on (1) the generalised method of moments (GMM) to control for persistence in inclusive human development, simultaneity and time-invariant omitted variables and (2) Instrumental Variable Tobit Regressions to control for simultaneity and the limited range in the dependent variable. The adopted foreign aid variables are: ‘humanitarian assistance’, ‘action on debt’ ‘aid for social infrastructure’, ‘aid to the productive sector’, ‘aid to the multi sector’, ‘aid for economic infrastructure’ and ‘programme assistance’. The following findings are established. From the GMM specifications, there are (1) synergy effects from ‘aid to the productive sector’ and a positive net effect from ‘programme assistance’ and (2) negative net impacts from ‘aid to social infrastructure’ and human assistance, albeit with positive marginal effects. From Instrumental Variable Tobit regressions (1) there is a synergy effect from ‘aid for economic infrastructure’ and (2) there are negative net impacts from ‘aid for social infrastructure’, ‘aid to the productive sector’ and human assistance, albeit with positive marginal effects. Policy implications are discussed.
KeywordsForeign aid Sustainable development Africa
JEL ClassificationB20 F35 F50 O10 O55
The authors are indebted to the editor and reviewers for constructive comments.
- Asiedu, E. (2014). Does foreign aid in education promote economic growth? Evidence from sub-Saharan Africa. Journal of African Development, 16(1), 37–59.Google Scholar
- Asongu, S. A., & Nwachukwu, J. C. (2016b). The role of governance in mobile phones for inclusive human development in sub-Saharan Africa. Technovation, 55–56 (September–October), pp. 1–13.Google Scholar
- Banerjee, A., & He, R. (2008). Making aid work. In W. Easterly (Ed.), Reinventing foreign aid. The MIT Press, Massachusetts, pp. 47–92.Google Scholar
- Bond, S., Hoeffler, A., & Tample, J. (2001). GMM estimation of empirical growth models. University of Oxford.Google Scholar
- Chang, H.-J. (2008). Bad Samaritans: The Myth of free trade and the secret history of capitalism. Bloomsbury Press; Reprint edition (December 23, 2008).Google Scholar
- Coccorese, P., & Pellecchia, A. (2010). Testing the ‘Quiet Life’ hypothesis in the italian banking industry. Economic Notes by Banca deiPaschi di Siena SpA, 39(3), 173–202.Google Scholar
- Duflo, E., & Kremer, M. (2008). Use of randomization in the evaluation of development effectiveness. In W. Easterly (Ed.), Reinventing foreign aid (pp. 93–120). Cambridge, MA: The MIT Press.Google Scholar
- Easterly, W. (2006). Planner versus searchers in foreign aid. Asian Development Review, 23(1), 1–35.Google Scholar
- Easterly, W. (2008). Reinventing foreign aid. Cambridge, MA: The MIT Press.Google Scholar
- Fields, G. (2001). Distribution and development, a new look at the developing world. Russel Sage Foundation, New York, and The MIT Press, Cambridge, Massachusetts, and London.Google Scholar
- Gyimah-Brempong, K., & Racine, J. S. (2014). Aid and economic growth: A robust approach. Journal of African Development, 16(1), 1–35.Google Scholar
- Jones, S., Page, J., Shimeles, A., & Tarp, F. (2015). Aid, growth and employment in Africa. African Development Review, Supplement: Special Issue on “Aid and Employment”, 27(S1), 1–4.Google Scholar
- Jones, S., & Tarp, F. (2015). Priorities for boosting employment in sub-Saharan Africa: Evidence for Mozambique. African Development Review, Supplement: Special Issue on “Aid and Employment”, 27(S1) 56–70.Google Scholar
- Koetter, M., Kolari, J. W., & Spierduk, L. (2008). Efficient competition? Testing the ‘Quiet Life’ of U.S. banks with adjusted lerner indices. In Proceedings of the 44th ‘bank structure and competition’ conference, Federal Reserve Bank of Chicago.Google Scholar
- Kremer, M. (2008). Making vaccines pay. In W. Easterly (Ed.), Reinventing foreign aid (pp. 417–430). Massachusetts: The MIT Press.Google Scholar
- Kuada, J. (2015). Private enterprise-led economic development. In J. Kuada (Ed.), Sub-Saharan Africa the human side of growth. New York, NY: Palgrave Macmillan.Google Scholar
- Michel, J. (2016). Beyond aid: The integration of sustainable development in a coherent international agenda. Centre for International Private Enterprises. http://www.cipe.org/publications/detail/beyond-aid-integration-sustainable-development-coherent-international-agenda Accessed 19/07/2016.
- Mshomba, R. E. (2011). Africa and the World Trade Organization. Cambridge University Press; Reprint edition (February 21, 2011).Google Scholar
- Obeng-Odoom, F. (2013). Africa’s failed economic development trajectory: A critique. African Review of Economics and Finance, 4(2), 151–175.Google Scholar
- Page, J., & Shimeles, A. (2015). Aid, employment and poverty reduction in Africa. African Development Review, Supplement: Special Issue on “Aid and Employment”, 27(S1), 17–30.Google Scholar
- Page, J., & Söderbom, M. (2015). Is small beautiful? Small enterprise, aid and employment in Africa. African Development Review, Supplement: Special Issue on “Aid and Employment” 27(S1), 44–55.Google Scholar
- Pritchett, L. (2008). It pays to be ignorant: A simple political economy of rigorous program evaluation. In W. Easterly (Ed.), Reinventing foreign aid. The MIT Press: Cambridge, MA, pp. 121–144.Google Scholar
- Pritchett, L., & Woolcook, M. (2008). Solutions when the solution is the problem: Arraying the disarray in development. In W. Easterly (Ed.), Reinventing foreign aid (pp. 147–178). Cambridge, MA: The MIT Press.Google Scholar
- Quartey, P., & Afful-Mensah, G. (2014). Foreign aid to Africa: Flows, patterns and impact. In C. Monga & J. Lin (Eds.), Oxford handbook of Africa and economics, volume 2: Policies and practices. Oxford: Oxford University Press.Google Scholar
- Radelet, S., & Levine, R. (2008). Can we build a better mousetrap? Three new institutions designed to improve aid effectiveness. In W. Easterly (Ed.), Reinventing foreign aid (pp. 431–460). Cambridge, MA: The MIT Press.Google Scholar
- Rogoff, K. (2014). “Foreign-aid follies”, project syndicate. https://www.project-syndicate.org/commentary/kenneth-rogoff-urges-caution-in-helping-poor-countries-to-develop Accessed 30/08/2014.
- Roodman, D. (2009b). How to do xtabond2: An introduction to difference and system GMM in Stata. Stata Journal, 9(1), 86–136.Google Scholar
- Simpasa, A., Shimeles, A., & Salami, A. O. (2015). Employment effects of multilateral development bank support: The case of the African development bank. African Development Review, Supplement: Special Issue on “Aid and Employment”, 27(S1), 31–43.Google Scholar
- Stiglitz, J. E. (2007). Making globalization work. W. W. Norton & Company; Reprint edition (September 17, 2007).Google Scholar
- World Bank (2015). World development indicators. World Bank publications. http://www.gopa.de/fr/news/world-bank-release-world-development-indicators-2015 Accessed 25/04/2015.