The Long-Run Impact of Foreign Aid in 36 African Countries
Insights from Multivariate Time Series Analysis
The authors comprehensively analyse the long-run effect of foreign aid (ODA) on key macroeconomic variables in 36 sub-Saharan African countries from the mid-1960s to 2007, using a well-specified co-integrated VAR model as statistical benchmark. Results provide broad support for a positive long-run impact of ODA flows on the macroeconomy. In contrast, they find little evidence supporting the thesis that aid has been harmful. From a methodological point of view they highlight the importance of transparency in reporting results, especially when the hypothesis being tested differs from theoretical expectations, and they identify reasons for econometrically inadequate results in the literature.