Macroeconomic, Institutional and political Determinants of Foreign aid Inflows: Evidence from selected sub-Saharan African Countries
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Date
2023-06-01
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A.AU.
Abstract
Using Blundell and Bond's one-step system GMM after controlling economic variables, this study evaluated the macroeconomic, political, and institutional determinants of the flows of official development in 40 SSA nations for the period 2002-2021. In order to reduce the possibility of multicolinearity and raise the weight of the variables, it calculated a weighted index using principal component analysis from the six governance indicators to quantify political stability and institutional excellence. The study's findings showed that institutional quality, the consumer price index, and lagged value government development assistance have a favorable influence on the flow of aid by 1% level of significant. The flow of government development assistance into SSA nations is also restricted by political stability, GDP per capita, and trade volume by 5%, 1%, and 1% level of significance. The study's policy recommendation is that governments in SSA nations can attract foreign capital by enhancing institutional quality and their ability to increase political stability and citizens' per capita income.
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Keywords
Official Development Assistance, Institutional quality, political Stability, GMM, SSA