Revisiting Aid Effectiveness in Africa: A Quantitative Analysis of Economic Inequality, ODA, and Growth

Abstract

Purpose: This study revisits the question of aid effectiveness by investigating how aid affects growth in Africa. The main purpose of this study is to examine the relations amongst economic inequality, ODA, and growth through a quantitative analysis. Originality: Through a panel data analysis including 38 sub-Saharan African countries from 2000 to 2015, we examined the relations amongst economic inequality, ODA, and growth. The relations between economic inequality and economic growth in Africa has been widely discussed. Yet very few studies have discussed the interactive impact of ODA on the relations between inequality and growth in Africa. Methodology: This study posits that economic inequality hinders economic growth in sub-Saharan African countries. We also hypothesize that the negative effect of economic inequality on economic growth is mitigated by ODA. To test these hypotheses, we analyzed data from 38 sub-Saharan African countries from 2000 to 2015. Our dataset is time-series cross-sectional (TSCS). For an empirical specification to test our hypotheses, we use fixed effect models to control heterogeneity across countries in our sample. Result: This study finds that economic inequality hinders economic growth in many countries in Africa, but the negative effect of economic inequality on economic growth is mitigated by ODA. Conclusions and Implication: Themainresult suggests that ODA has some positive impact in the process of economic growth in sub-Saharan Africa by reducing the negative impact of inequality on growth. It also implies that it would be hasty to jump to the conclusion that foreign aid is harmful to the process of development in the region.