Title : Foreign Aid and External Debt: The African Perspective

Authors : Md. Sharif Hossain and Rajarshi Mitra

Abstract : As African countries remain dependent on foreign aid for sustainable economic growth and development, the persistently slow economic growth-rate in the region has often been linked to rising external debt-burden and default risk. To what extent has foreign aid contributed to the long-term external debt burden of Africa? Most empirical studies have examined the growth effectiveness of external debt and foreign aid; there is, however, a lack of extensive literature on the impact of foreign aid on rising external debt burden and default risk in case of the African economies. This paper investigates the short-run and the long-run effects of foreign aid, government spending, trade openness and domestic investment on the long-term external debt (in proportion to GDP) for a panel of 33 aid-dependent African economies. The results indicate that the long-run effects of foreign aid and trade openness on external debt are significantly positive while that of government spending is significantly negative.

Journal : Journal of Business Studies, Volume : XXXVI Year : December 2015 Issue : 3
Pages : 57-66 City : Edition : Editors :
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