The Effect of Foreign Aid on Economic Growth: the Case of Sub-Saharan African Countries
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Date
2025-06-11
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A.A.U
Abstract
This thesis assesses the impact of foreign aid on Sab-Saharan African Economic growth. Its
objective is to explain the trend of foreign Aid and assess the effect of foreign Aid on Sub -
Saharan African economic growth (GDPPC growth) as measured by GGDP per capital. In
order to fulfill its objective, the studies used panel data from 33 SSA countries for 24 years
(2000-2024) and using Generalized method of moment(GMM) regression model, this study
assess the impact of foreign assistant on economic growth in Sub-Saharan African (SSA). The
main variables in this study is GGDP per capita (constant 2021$US) as dependent variable,
Labor force participation rate (L), Capital Formation (K), Government Consumption
Expenditure (GC), Foreign direct investment (FDI), Trade (T) and Foreign aid (Aid) as
Explanatory variable (Independent Variable). The study finds indicate that foreign aid has
positive and significant effect on SSA economic growth. The study result also suggests that there
is diminishing return of aid as the volume of aid increase in the same countries under the study.
As the study finds indicate the effect of foreign aid on Sub-Saharan African Economic growth is
very low. Therefore, the countries shall reduce aid dependency and focus on their home
economy. Additionally, large set of variable for all Sub-Saharan African countries and including
the conditions on which foreign aid may depend for effectiveness like government effectiveness,
economic policy and institutional quality is important for the future researchers and policy
makers.