Impact of Bilateral and Multilateral Aid on Economic Growth in Sub-Saharan Africa and the Mediating Role of Institutional Quality

Kosea Wambaka; John Mutenyo

doi:doi:10.11648/j.jbed.20220702.13

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Impact of Bilateral and Multilateral Aid on Economic Growth in Sub-Saharan Africa and the Mediating Role of Institutional Quality

Kosea Wambaka, John Mutenyo

Published in Journal of Business and Economic Development (Volume 7, Issue 2)

Received: 16 March 2022 Accepted: 8 April 2022 Published: 26 April 2022

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Abstract

Since the 1960s, Sub Sahara African (SSA) countries have been the largest net recipients of aid relative to other aid recipient countries partly for promoting growth. In spite of this, SSA countries continue to underperform in terms of economic growth relative to other aid-recipient regions. While research on the impact of foreign aid on economic growth of SSA countries is abound, it is characterized by mixed results. This may be attributed to use of aggregate forms of aid in estimation models, which do not specify which form of aid impacts economic growth of recipient countries. In addition, while development theory presupposes that institutional quality determines aid effectiveness, research on whether the effectiveness of disaggregated aid depends on institutional quality remains limited in SSA countries. Thus, this study seeks to examine the impact of bilateral and multilateral aid on economic growth of Sub Sahara African countries, and determines whether the impact depends on institutional quality. The study uses a balanced panel data set of 28 SSA countries from 1996 – 2015, and a dynamic model is specified and estimated using the technique of system GMM. The findings indicate that only bilateral aid has a significant impact of economic growth of SSA countries generally. However, after interacting the disaggregated aid components with institutional quality, only multilateral aid has a positive and significant impact on economic growth in these countries. The results further show that the impact of multilateral aid on economic growth in SSA countries depends on the quality of institutions existing in those countries. Even after accounting for differences in levels of economic development, only multilateral aid has a positive and significant impact on economic growth in both low and middle-income countries, and the impact in both categories of countries depends on the existence of good quality institutions. The study concludes that multilateral aid has a positive and significant impact on the economic growth of SSA countries, and the impact depends on existence of good quality institutions in those countries. In order to enhance economic growth, the study recommends increasing foreign aid inflows particularly from multilateral sources, and in order to enhance effectiveness of multilateral aid, the study recommends that SSA should strengthen existing institutions through ensuring proper control of corruption, rule of law, regulatory quality, government effectiveness, political stability, and voice and accountability.

Published in	Journal of Business and Economic Development (Volume 7, Issue 2)
DOI	10.11648/j.jbed.20220702.13
Page(s)	54-62
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2022. Published by Science Publishing Group

Keywords

Bilateral Aid, Multilateral Aid, Economic Growth, Sub-Saharan Africa

References

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Kosea Wambaka, John Mutenyo. (2022). Impact of Bilateral and Multilateral Aid on Economic Growth in Sub-Saharan Africa and the Mediating Role of Institutional Quality. Journal of Business and Economic Development, 7(2), 54-62. https://doi.org/10.11648/j.jbed.20220702.13

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ACS Style

Kosea Wambaka; John Mutenyo. Impact of Bilateral and Multilateral Aid on Economic Growth in Sub-Saharan Africa and the Mediating Role of Institutional Quality. J. Bus. Econ. Dev. 2022, 7(2), 54-62. doi: 10.11648/j.jbed.20220702.13

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AMA Style

Kosea Wambaka, John Mutenyo. Impact of Bilateral and Multilateral Aid on Economic Growth in Sub-Saharan Africa and the Mediating Role of Institutional Quality. J Bus Econ Dev. 2022;7(2):54-62. doi: 10.11648/j.jbed.20220702.13

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@article{10.11648/j.jbed.20220702.13,
  author = {Kosea Wambaka and John Mutenyo},
  title = {Impact of Bilateral and Multilateral Aid on Economic Growth in Sub-Saharan Africa and the Mediating Role of Institutional Quality},
  journal = {Journal of Business and Economic Development},
  volume = {7},
  number = {2},
  pages = {54-62},
  doi = {10.11648/j.jbed.20220702.13},
  url = {https://doi.org/10.11648/j.jbed.20220702.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jbed.20220702.13},
  abstract = {Since the 1960s, Sub Sahara African (SSA) countries have been the largest net recipients of aid relative to other aid recipient countries partly for promoting growth. In spite of this, SSA countries continue to underperform in terms of economic growth relative to other aid-recipient regions. While research on the impact of foreign aid on economic growth of SSA countries is abound, it is characterized by mixed results. This may be attributed to use of aggregate forms of aid in estimation models, which do not specify which form of aid impacts economic growth of recipient countries. In addition, while development theory presupposes that institutional quality determines aid effectiveness, research on whether the effectiveness of disaggregated aid depends on institutional quality remains limited in SSA countries. Thus, this study seeks to examine the impact of bilateral and multilateral aid on economic growth of Sub Sahara African countries, and determines whether the impact depends on institutional quality. The study uses a balanced panel data set of 28 SSA countries from 1996 – 2015, and a dynamic model is specified and estimated using the technique of system GMM. The findings indicate that only bilateral aid has a significant impact of economic growth of SSA countries generally. However, after interacting the disaggregated aid components with institutional quality, only multilateral aid has a positive and significant impact on economic growth in these countries. The results further show that the impact of multilateral aid on economic growth in SSA countries depends on the quality of institutions existing in those countries. Even after accounting for differences in levels of economic development, only multilateral aid has a positive and significant impact on economic growth in both low and middle-income countries, and the impact in both categories of countries depends on the existence of good quality institutions. The study concludes that multilateral aid has a positive and significant impact on the economic growth of SSA countries, and the impact depends on existence of good quality institutions in those countries. In order to enhance economic growth, the study recommends increasing foreign aid inflows particularly from multilateral sources, and in order to enhance effectiveness of multilateral aid, the study recommends that SSA should strengthen existing institutions through ensuring proper control of corruption, rule of law, regulatory quality, government effectiveness, political stability, and voice and accountability.},
 year = {2022}
}

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TY  - JOUR
T1  - Impact of Bilateral and Multilateral Aid on Economic Growth in Sub-Saharan Africa and the Mediating Role of Institutional Quality
AU  - Kosea Wambaka
AU  - John Mutenyo
Y1  - 2022/04/26
PY  - 2022
N1  - https://doi.org/10.11648/j.jbed.20220702.13
DO  - 10.11648/j.jbed.20220702.13
T2  - Journal of Business and Economic Development
JF  - Journal of Business and Economic Development
JO  - Journal of Business and Economic Development
SP  - 54
EP  - 62
PB  - Science Publishing Group
SN  - 2637-3874
UR  - https://doi.org/10.11648/j.jbed.20220702.13
AB  - Since the 1960s, Sub Sahara African (SSA) countries have been the largest net recipients of aid relative to other aid recipient countries partly for promoting growth. In spite of this, SSA countries continue to underperform in terms of economic growth relative to other aid-recipient regions. While research on the impact of foreign aid on economic growth of SSA countries is abound, it is characterized by mixed results. This may be attributed to use of aggregate forms of aid in estimation models, which do not specify which form of aid impacts economic growth of recipient countries. In addition, while development theory presupposes that institutional quality determines aid effectiveness, research on whether the effectiveness of disaggregated aid depends on institutional quality remains limited in SSA countries. Thus, this study seeks to examine the impact of bilateral and multilateral aid on economic growth of Sub Sahara African countries, and determines whether the impact depends on institutional quality. The study uses a balanced panel data set of 28 SSA countries from 1996 – 2015, and a dynamic model is specified and estimated using the technique of system GMM. The findings indicate that only bilateral aid has a significant impact of economic growth of SSA countries generally. However, after interacting the disaggregated aid components with institutional quality, only multilateral aid has a positive and significant impact on economic growth in these countries. The results further show that the impact of multilateral aid on economic growth in SSA countries depends on the quality of institutions existing in those countries. Even after accounting for differences in levels of economic development, only multilateral aid has a positive and significant impact on economic growth in both low and middle-income countries, and the impact in both categories of countries depends on the existence of good quality institutions. The study concludes that multilateral aid has a positive and significant impact on the economic growth of SSA countries, and the impact depends on existence of good quality institutions in those countries. In order to enhance economic growth, the study recommends increasing foreign aid inflows particularly from multilateral sources, and in order to enhance effectiveness of multilateral aid, the study recommends that SSA should strengthen existing institutions through ensuring proper control of corruption, rule of law, regulatory quality, government effectiveness, political stability, and voice and accountability.
VL  - 7
IS  - 2
ER  -

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Author Information

Kosea Wambaka

College of Business and Management Sciences, Makerere University, Kampala, Uganda
John Mutenyo

Department of Economic Theory and Analysis, College of Business and Management Sciences, Makerere University, Kampala, Uganda

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Kosea Wambaka, John Mutenyo. (2022). Impact of Bilateral and Multilateral Aid on Economic Growth in Sub-Saharan Africa and the Mediating Role of Institutional Quality. Journal of Business and Economic Development, 7(2), 54-62. https://doi.org/10.11648/j.jbed.20220702.13

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ACS Style

Kosea Wambaka; John Mutenyo. Impact of Bilateral and Multilateral Aid on Economic Growth in Sub-Saharan Africa and the Mediating Role of Institutional Quality. J. Bus. Econ. Dev. 2022, 7(2), 54-62. doi: 10.11648/j.jbed.20220702.13

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AMA Style

Kosea Wambaka, John Mutenyo. Impact of Bilateral and Multilateral Aid on Economic Growth in Sub-Saharan Africa and the Mediating Role of Institutional Quality. J Bus Econ Dev. 2022;7(2):54-62. doi: 10.11648/j.jbed.20220702.13

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@article{10.11648/j.jbed.20220702.13,
  author = {Kosea Wambaka and John Mutenyo},
  title = {Impact of Bilateral and Multilateral Aid on Economic Growth in Sub-Saharan Africa and the Mediating Role of Institutional Quality},
  journal = {Journal of Business and Economic Development},
  volume = {7},
  number = {2},
  pages = {54-62},
  doi = {10.11648/j.jbed.20220702.13},
  url = {https://doi.org/10.11648/j.jbed.20220702.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jbed.20220702.13},
  abstract = {Since the 1960s, Sub Sahara African (SSA) countries have been the largest net recipients of aid relative to other aid recipient countries partly for promoting growth. In spite of this, SSA countries continue to underperform in terms of economic growth relative to other aid-recipient regions. While research on the impact of foreign aid on economic growth of SSA countries is abound, it is characterized by mixed results. This may be attributed to use of aggregate forms of aid in estimation models, which do not specify which form of aid impacts economic growth of recipient countries. In addition, while development theory presupposes that institutional quality determines aid effectiveness, research on whether the effectiveness of disaggregated aid depends on institutional quality remains limited in SSA countries. Thus, this study seeks to examine the impact of bilateral and multilateral aid on economic growth of Sub Sahara African countries, and determines whether the impact depends on institutional quality. The study uses a balanced panel data set of 28 SSA countries from 1996 – 2015, and a dynamic model is specified and estimated using the technique of system GMM. The findings indicate that only bilateral aid has a significant impact of economic growth of SSA countries generally. However, after interacting the disaggregated aid components with institutional quality, only multilateral aid has a positive and significant impact on economic growth in these countries. The results further show that the impact of multilateral aid on economic growth in SSA countries depends on the quality of institutions existing in those countries. Even after accounting for differences in levels of economic development, only multilateral aid has a positive and significant impact on economic growth in both low and middle-income countries, and the impact in both categories of countries depends on the existence of good quality institutions. The study concludes that multilateral aid has a positive and significant impact on the economic growth of SSA countries, and the impact depends on existence of good quality institutions in those countries. In order to enhance economic growth, the study recommends increasing foreign aid inflows particularly from multilateral sources, and in order to enhance effectiveness of multilateral aid, the study recommends that SSA should strengthen existing institutions through ensuring proper control of corruption, rule of law, regulatory quality, government effectiveness, political stability, and voice and accountability.},
 year = {2022}
}

Copy | Download

TY  - JOUR
T1  - Impact of Bilateral and Multilateral Aid on Economic Growth in Sub-Saharan Africa and the Mediating Role of Institutional Quality
AU  - Kosea Wambaka
AU  - John Mutenyo
Y1  - 2022/04/26
PY  - 2022
N1  - https://doi.org/10.11648/j.jbed.20220702.13
DO  - 10.11648/j.jbed.20220702.13
T2  - Journal of Business and Economic Development
JF  - Journal of Business and Economic Development
JO  - Journal of Business and Economic Development
SP  - 54
EP  - 62
PB  - Science Publishing Group
SN  - 2637-3874
UR  - https://doi.org/10.11648/j.jbed.20220702.13
AB  - Since the 1960s, Sub Sahara African (SSA) countries have been the largest net recipients of aid relative to other aid recipient countries partly for promoting growth. In spite of this, SSA countries continue to underperform in terms of economic growth relative to other aid-recipient regions. While research on the impact of foreign aid on economic growth of SSA countries is abound, it is characterized by mixed results. This may be attributed to use of aggregate forms of aid in estimation models, which do not specify which form of aid impacts economic growth of recipient countries. In addition, while development theory presupposes that institutional quality determines aid effectiveness, research on whether the effectiveness of disaggregated aid depends on institutional quality remains limited in SSA countries. Thus, this study seeks to examine the impact of bilateral and multilateral aid on economic growth of Sub Sahara African countries, and determines whether the impact depends on institutional quality. The study uses a balanced panel data set of 28 SSA countries from 1996 – 2015, and a dynamic model is specified and estimated using the technique of system GMM. The findings indicate that only bilateral aid has a significant impact of economic growth of SSA countries generally. However, after interacting the disaggregated aid components with institutional quality, only multilateral aid has a positive and significant impact on economic growth in these countries. The results further show that the impact of multilateral aid on economic growth in SSA countries depends on the quality of institutions existing in those countries. Even after accounting for differences in levels of economic development, only multilateral aid has a positive and significant impact on economic growth in both low and middle-income countries, and the impact in both categories of countries depends on the existence of good quality institutions. The study concludes that multilateral aid has a positive and significant impact on the economic growth of SSA countries, and the impact depends on existence of good quality institutions in those countries. In order to enhance economic growth, the study recommends increasing foreign aid inflows particularly from multilateral sources, and in order to enhance effectiveness of multilateral aid, the study recommends that SSA should strengthen existing institutions through ensuring proper control of corruption, rule of law, regulatory quality, government effectiveness, political stability, and voice and accountability.
VL  - 7
IS  - 2
ER  -

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