Exploring the link between aid and economic growth : an African perspective

ENGLISH ABSTRACT: It is a fact that development aid represents the single most important source of external finance for most developing countries. This study sought to answer an important question relating to whether aid has a positive impact on economic growth or not. There is much literature on the subject and the views are quite diverse.Using the World Development Indicators (WDI) data, a cross-section regression analysis was performed over a period of 16 years and existing literature on the subject was re-examined. Of importance, this study tries to understand what the determinants or triggers of economic growth are, especially in developing economies. The results show that, although no significant relationship could be found between economic growth and development aid, there is strong evidence that there is a significant positive relationship between economic growth and the important triggers of economic growth used in the study, namely exports and investments. These are important components for the growth of any economy. The implicit conclusion is that since these two components are being impacted positively by aid, it follows then that the link between economic growth and aid can be considered to be a positive one.These findings go against the critics of development aid who maintain that aid that is being pumped into developing economies, especially the African continent, is actually just going into a big black hole and could be used more effectively somewhere else. This study proves that this is not the case and donor countries need to intensify their efforts of providing aid to poor countries because they need it and it is actually making a difference.AFRIKAANSE OPSOMMING: Dit is ‘n algemeen aanvaarde feit dat ontwikkelingsteun die enkel belangrikste bron van eksterne finansiering is vir die meeste ontwikkelende lande. Hierdie studie poog om antwoorde te vind vir die belangrike vraag of steun ‘n positiewe impak op ekonomiese groei het of nie. Daar is volop literatuur oor die onderwerp beskikbaar en die opvattings is uiters uiteenlopend.Deur die World Development Indicators data te gebruik, is ‘n deursnit regressie analise gedoen oor ‘n periode van 16 jaar en bestaande literatuur oor die onderwerp is weer ondersoek. Die belangrikste oogmerk van die studie is om te probeer verstaan wat die bepalers of snellers van ekonomiese groei is, veral in ontwikkelende ekonomië. Die uitslae toon dat, alhoewel daar geen beduidende verhouding gevind kon word tussen ekonomiese groei en ontwikkelingsteun nie, daar wel sterk bewyse is vir ‘n beduidende positiewe verhouding tussen ekonomiese groei en die belangrike snellers van ekonomiese groei soos gebruik in die studie, naamlik uitvoere en beleggings. Hierdie is belangrike komponente vir die groei van enige ekonomie. Die implisiete afleiding is dus dat, aangesien hierdie twee komponente positief beïnvloed word deur ontwikkelingsteun, dit volg dat die skakel tussen ekonomiese groei en steun ook as ‘n positiewe een beskou kan word.Hierdie bevindings is lynreg in teenstelling met die kritici van ontwikkelingsteun wat handhaaf dat steun wat aan ontwikkelende lande, veral in Afrika, gegee word, eintlik net in ‘n groot swart gat verdwyn en meer effektief elders aangewend kan word. Hierdie studie bewys dat dit nie die geval is nie en dat skenker lande eerder hulle pogings om steun aan arm lande te bied moet verskerp omdat hulle dit nodig het en omdat dit regtig ‘n verskil maak.