The Impact of Foreign Aid on Economic Growth: The Case of Sub Sahara African Countries

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This paper investigates the impact of foreign aid on economic growth of Sub Saharan Africa countries. Its aimed at explaining the trends of the flow of foreign aid, investigating the relationship between foreign aid and economic growth as measured by the GDP and determining the magnitude of the impact. Taking a panel of 11 Sub Sahara African countries and employing GMM regression model, this study investigated the impact of foreign aid on economic growth of Sub Sahara African countries. This study covers a period of 30 years from 1988 to 2017. The key variables of this study are ODA, FDI, capital formation, school enrolment, population growth rate, net export and government expenditure. The findings of this study show that for SSA countries, foreign aid has positive, statistically significant and inelastic impact on economic growth. The results also suggest that the aid-growth relationship is non-linear and foreign aid has diminishing returns as the volume of aid increases. The study recommends to reduce aid dependency and to further study the conditions under which aid performs well.



Economic Growth, Sahara African Countries