Foreign aid and economic growth in the developing countries - a  (Page 13/21)

For the period from 1975 to 1991, as Table 1 shows, there is a strong negative correlation between economicgrowth and foreign aid (ODA). The coefficient of the ODA variable is consistently negative and significant at the 10% level acrossregressions. The coefficients of both regional dummy and slope dummy for Sub-Saharan Africa are negative and significant at the10% level with t-statistics 1.65 and 1.38 respectively in regression 2. The INLAND dummy and its slope dummy, i.e.ODA*INLAND, are positive and significant at the 15% and 10% levels respectively in regression 3. These results strongly suggest thatthere are differences in aid-growth relation between inland countries as well as those in Sub-Saharan Africa and the rest ofdeveloping countries from 1975 to 1991. Aid to the sampled inland countries contributes to growth while aid to Sub-Saharan countrieshinders growth.

Across regressions in Table 1, the sign of the explanatory variables are basically consistent with the theory. Thestrongly positive coefficient of initial GDP per capita shows a divergence instead of convergence among the countries in thesample. Since these developing countries have different levels of technology, investment and population growth, they have differentsteady states. Those countries that have higher initial GDP level will accelerate faster. TRADE and SCHOOL have positive impact oneconomic growth but SAVING, FDI and POPULATION are insignificant.

5.2. Sub-period 1992-2000

As shown in Table 2, the coefficient of ODA is negative and significant in regressions 4 and 6. Note that slopedummies ODA*SOUTHASIA and ODA*EASTASIA are significant at the 15% level in regression 5 with t-statistics 1.15 and 1.13 respectively.The sign of slope dummy ODA*SOUTHASIA is positive while that of ODA*EASTASIA is negative. However, the dummies for these tworegions, i.e. SOUTHASIA and EASTASIA, are not significant suggesting that they have the same intercept but different slope.Dummy INLAND and its slope dummy ODA*INLAND are positive and significant at the 10% level with t-statistics 1.39 and 1.42respectively (regression 6). This implies that during the period 1992-2000, aid has a positive impact on growth in the studiedinland countries and a differentially positive impact on growth in South Asian countries. The coefficients SUB-SAHARA and ofODA*SUBSAHARA are insignificant in regression 5.

Other explanatory variables are consistent across regressions with positive coefficients of initial level ofGDP per capita (i.e. in 1992), SAVING, TRADE and SCHOOL. The coefficients of FDI and POPULATION are insignificant.

5.3. Overall period 1975-2000

As Table 3 shows, the coefficient of ODA is consistently negative and significant at the 5% level across allregressions. The coefficients of regional dummy SUBSAHARA and its slope dummy ODA*SUBSAHARA are negative and significant at the 10%and 15% level respectively in regression 8. Dummy INLAND and its slope dummy ODA*INLAND are positive and significant at the 10%level in regression 9. These are evidences further consolidate the results of previous regressions that aid to the studied inlandcountries contributes to growth while aid to Sub-Saharan Africa hinders growth.