TITLE:
Can Foreign Aid Help Sub-Saharan African Countries with Economic Growth?
AUTHORS:
Qingtian Wu, Desire Bote
KEYWORDS:
Foreign Aid, Economic Growth, Panel Data, Sub-Saharan African Countries
JOURNAL NAME:
Theoretical Economics Letters,
Vol.15 No.1,
February
5,
2025
ABSTRACT: Foreign aid remains a crucial financial resource for many Sub-Saharan African countries, yet its impact on economic growth has been widely debated. This study re-examines the relationship using panel data from 43 Sub-Saharan African countries over the period 2005-2020. Our results show that fixed effects are significant, indicating that aid directly influences economic growth. Threshold analysis reveals that aid positively affects growth across various thresholds, highlighting its consistent impact. Additionally, our findings suggest that aid influences growth indirectly through transmission mechanisms such as increased domestic investment, improved health outcomes, and enhanced consumption. Based on these results, we present policy recommendations for optimizing aid allocation. Policymakers should focus on ensuring that aid is used efficiently to strengthen institutional frameworks, improve domestic investment climates, and enhance health and social systems. Furthermore, fostering economic freedom and stability will enable countries to fully leverage the benefits of aid and achieve sustainable growth.