Foreign aid and foreign direct investment, corruption, and economic growth in Sub-Saharan African countries

For over forty years, foreign aid has been one of the key development instruments for Sub-Saharan African (SSA) countries, specifically, and the African region as a whole. Foreign aid is largely channeled to assist the growth of the recipient countries by supplementing savings and foreign exchange c...

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Main Author:	Mohamed, Masoud Rashid
Format:	Thesis
Language:	English
Published:	2014
Subjects:	Investments Foreign - Africa Economic development - Africa Corruption - Economic aspects - Case studies
Online Access:	http://psasir.upm.edu.my/id/eprint/39584/1/FEP%202014%205.pdf
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id	my-upm-ir.39584
record_format	uketd_dc
institution	Universiti Putra Malaysia
collection	PSAS Institutional Repository
language	English
advisor	Kaliappan, Shivee Ranjanee
topic	Investments Foreign - Africa Economic development - Africa Corruption - Economic aspects - Case studies
spellingShingle	Investments Foreign - Africa Economic development - Africa Corruption - Economic aspects - Case studies Mohamed, Masoud Rashid Foreign aid and foreign direct investment, corruption, and economic growth in Sub-Saharan African countries
description	For over forty years, foreign aid has been one of the key development instruments for Sub-Saharan African (SSA) countries, specifically, and the African region as a whole. Foreign aid is largely channeled to assist the growth of the recipient countries by supplementing savings and foreign exchange constraints of the recipient countries. However, despite the huge flow of aid to SSA countries, economic growth is still low. This makes the region underdeveloped with high poverty rates. Besides foreign aid, SSA countries also experience a substantial increase in the flows of foreign direct investment (FDI), although the share is still small compared to the flows of FDI to other developing countries as a whole. Despite having more FDI now compared to previous decades, the region still experiences low economic growth. Another important issue in this respect is that the literature reveals that foreign aid and FDI cannot promote growth if they are associated with a higher level of corruption as corruption itself discourages growth. Against this background, this study intends to a) analyze the long run relationship between foreign aid, FDI and economic growth in Sub-Saharan African countries; (b) explore the empirical nexus between foreign aid and FDI flows in SSA countries; and (c) investigate the impact of foreign aid flows on the level of corruption in SSA countries. Two methodologies were used to achieve the stated objectives. For the first and second objectives, the Generalized Method of Moments (GMM) approach was used, while for the third objective, a Quantile Regression approach was applied. The analyzed data covered the period of 1996 to 2010 for the first objective (with 41 sample countries); 1990 to 2010 for the second objective (45 countries); and 2000 to 2010 for the third objective (42 countries). The findings reveal that while foreign aid has a negative effect on growth, the impact of FDI is positive but statistically insignificant. Aid from different bilateral donors was found to have a different impact on growth. The results further indicate that all three categories of aid (total, bilateral, and multilateral) have a direct positive effect on the flow of FDI. Moreover, the findings indicate that poor institutional quality is associated with the low inflow of FDI into SSA countries. Concerning the link between foreign aid and corruption, the results show that aid has the tendency of increasing the corruption levels of SSA countries. The results further reveal that aid from different bilateral sources has a different impact on corruption. That is, aid from some bilateral donors such as France and US reduce corruption while aid from some other bilateral donors (UK, Canada, and Germany) increases corruption. Based on the findings, the study suggests that the allocation of aid should be targeted towards the improvement of institutional quality in order to generate the desired outcome of high economic growth. Moreover, it is highly crucial to ensure that the aid fund is allocated to the most productive sectors so that a substantial improvement could be achieved in the economic growth and welfare of SSA countries. This could be achieved if the coordination between the various donors (bilateral and multilateral) is also improved. Since current allocation of aid seem to be associated with increase of corruption, the allocation policy should be revisited to ensure that aid improve the quality of institution and governance of recipient countries in order to reduce the level of corruption. This would eventually ensure more inflows of aid and FDI in the future and will result in a noticeable impact on the economic growth of SSA countries.
format	Thesis
qualification_level	Doctorate
author	Mohamed, Masoud Rashid
author_facet	Mohamed, Masoud Rashid
author_sort	Mohamed, Masoud Rashid
title	Foreign aid and foreign direct investment, corruption, and economic growth in Sub-Saharan African countries
title_short	Foreign aid and foreign direct investment, corruption, and economic growth in Sub-Saharan African countries
title_full	Foreign aid and foreign direct investment, corruption, and economic growth in Sub-Saharan African countries
title_fullStr	Foreign aid and foreign direct investment, corruption, and economic growth in Sub-Saharan African countries
title_full_unstemmed	Foreign aid and foreign direct investment, corruption, and economic growth in Sub-Saharan African countries
title_sort	foreign aid and foreign direct investment, corruption, and economic growth in sub-saharan african countries
granting_institution	Universiti Putra Malaysia
publishDate	2014
url	http://psasir.upm.edu.my/id/eprint/39584/1/FEP%202014%205.pdf
_version_	1811767733796208640
spelling	my-upm-ir.395842024-08-30T02:27:51Z Foreign aid and foreign direct investment, corruption, and economic growth in Sub-Saharan African countries 2014-01 Mohamed, Masoud Rashid For over forty years, foreign aid has been one of the key development instruments for Sub-Saharan African (SSA) countries, specifically, and the African region as a whole. Foreign aid is largely channeled to assist the growth of the recipient countries by supplementing savings and foreign exchange constraints of the recipient countries. However, despite the huge flow of aid to SSA countries, economic growth is still low. This makes the region underdeveloped with high poverty rates. Besides foreign aid, SSA countries also experience a substantial increase in the flows of foreign direct investment (FDI), although the share is still small compared to the flows of FDI to other developing countries as a whole. Despite having more FDI now compared to previous decades, the region still experiences low economic growth. Another important issue in this respect is that the literature reveals that foreign aid and FDI cannot promote growth if they are associated with a higher level of corruption as corruption itself discourages growth. Against this background, this study intends to a) analyze the long run relationship between foreign aid, FDI and economic growth in Sub-Saharan African countries; (b) explore the empirical nexus between foreign aid and FDI flows in SSA countries; and (c) investigate the impact of foreign aid flows on the level of corruption in SSA countries. Two methodologies were used to achieve the stated objectives. For the first and second objectives, the Generalized Method of Moments (GMM) approach was used, while for the third objective, a Quantile Regression approach was applied. The analyzed data covered the period of 1996 to 2010 for the first objective (with 41 sample countries); 1990 to 2010 for the second objective (45 countries); and 2000 to 2010 for the third objective (42 countries). The findings reveal that while foreign aid has a negative effect on growth, the impact of FDI is positive but statistically insignificant. Aid from different bilateral donors was found to have a different impact on growth. The results further indicate that all three categories of aid (total, bilateral, and multilateral) have a direct positive effect on the flow of FDI. Moreover, the findings indicate that poor institutional quality is associated with the low inflow of FDI into SSA countries. Concerning the link between foreign aid and corruption, the results show that aid has the tendency of increasing the corruption levels of SSA countries. The results further reveal that aid from different bilateral sources has a different impact on corruption. That is, aid from some bilateral donors such as France and US reduce corruption while aid from some other bilateral donors (UK, Canada, and Germany) increases corruption. Based on the findings, the study suggests that the allocation of aid should be targeted towards the improvement of institutional quality in order to generate the desired outcome of high economic growth. Moreover, it is highly crucial to ensure that the aid fund is allocated to the most productive sectors so that a substantial improvement could be achieved in the economic growth and welfare of SSA countries. This could be achieved if the coordination between the various donors (bilateral and multilateral) is also improved. Since current allocation of aid seem to be associated with increase of corruption, the allocation policy should be revisited to ensure that aid improve the quality of institution and governance of recipient countries in order to reduce the level of corruption. This would eventually ensure more inflows of aid and FDI in the future and will result in a noticeable impact on the economic growth of SSA countries. Investments, Foreign - Africa Economic development - Africa Corruption - Economic aspects - Case studies 2014-01 Thesis http://psasir.upm.edu.my/id/eprint/39584/ http://psasir.upm.edu.my/id/eprint/39584/1/FEP%202014%205.pdf text en public doctoral Universiti Putra Malaysia Investments, Foreign - Africa Economic development - Africa Corruption - Economic aspects - Case studies Kaliappan, Shivee Ranjanee

Foreign aid and foreign direct investment, corruption, and economic growth in Sub-Saharan African countries

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