Aid, Macroeconomic Policy Environment and Growth: Evidence from Sub-Saharan Africa

This study is a contribution to the growing debate on aid-growth nexus. It examines the role of macroeconomic policy environment in aid-growth nexus the area of which has received less attention in Sub-Saharan Africa (SSA). In a panel regression model covering 20 Sub-Saharan African countries, estimated with the use of OLS and TSLS over the period 1970-2001 (in 9-4 years sub-periods), the study finds that a sound macroeconomic environment is a sine qua non for the effective contribution of aid to sustainable growth. The results also show that macroeconomic policy environment is an important determinant of growth. Overall, the study concludes that the incessant socio-political crisis, policy inconsistencies, bad governance and macroeconomic instability evident in many SSA countries have crippled the effectiveness of aid in these countries.