Aid-Growth Relationship: Evidence From a Co-integrat？on Analysis for the Five Poorest Countries of the World

Abstract: The impact of Official Development Assistance (ODA) which is geared towards economic growth of the 5 poorest economies of the world (Niger, Congo, Burundi, Malawi, and the Central African Republic) was analysed. Employing a well-structured growth model and yearly data from 1986 – 2015, we examine this growing nexus using a robust model specification, hence testing both the long and short run relationship between economic growth and ODA. The ARDL long-run relationship and an Error Correction Model (ECM) was used to test for the relationship alongside the rate at which the variables returns back to the long-run equilibrium following a shock in the short run. There exist a significant positive association for Niger as well as Malawi in the long run, while other countries displayed no long-run relationship. Interestingly, the relationship in the short run was found only in Congo. The derived conclusion from this paper is that the government have to re-evaluate the sectoral allocation of foreign Aid received to ensure higher efficiency and a prospective economic growth and development of these countries. Keywords: Foreign aid, economic growth, RGDPpc, ARDL, EC