Foreign aid, External Debt and Economic Growth in Africa: it all depends on Governance

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ENOCK MWAKALILA

Abstract

This study empirically analyzes the impact of Foreign Aid and External Debt on Economic growth in Africa taking into account governance indicators. Panel data is collected for 39 countries in Africa spanning across 20 years from 1996 to 2016. Ordinary Least Square (OLS), Fixed Effects, and System Generalized Method of Moment (GMM) estimation techniques are used for the analysis. The results are robust in a sub-sampling analysis based on income level, years, Aid and Debt categories. The results first suggest that in general, both foreign aid and external debt have a negative impact on the African economy but some African countries that have strong governance indicators are the ones that benefit from foreign aid and loans in improving their economy. Second, foreign aid from the U.S. has a detrimental negative impact on the African economy compared to that from EU countries. Finally, foreign aid brings more harm to lower income countries compared to upper and lower-middle-income countries.

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How to Cite
MWAKALILA, E. (2019). Foreign aid, External Debt and Economic Growth in Africa: it all depends on Governance. African Journal Of Governance & Development, 8(2), 7-23. Retrieved from https://journals.ukzn.ac.za/index.php/jgd/article/view/1120
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