155 lines
5.2 KiB
YAML
155 lines
5.2 KiB
YAML
abstract: 'Purpose This paper examines the relationship between foreign aid,
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institutional democracy and poverty. The paper explores the direct
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effect of foreign aid on poverty and quantifies the facilitating role of
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democracy in harnessing foreign aid for poverty reduction in Sub-Saharan
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Africa (SSA). Design/methodology/approach The paper attempts to address
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the endogenous relationship between foreign aid and poverty by employing
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the two-stage least squares instrumental variable (2SLS-IV) estimator by
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using GDP per capita of the top five Organization for Economic
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Co-operation and Development (OECD) countries sending foreign aid to SSA
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countries scaled by the inverse of the land area of the SSA countries to
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stimulate an exogenous variation in foreign aid and its components. The
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initial level of democracy is interacted with the senders'' GDP per
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capita to also instrument for the interaction terms of democracy,
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foreign aid and its components. Findings The results suggest that
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foreign aid reduces poverty and different components of foreign aid have
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different effects on poverty. In particular, multilateral source and
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grant type seem to be more significant in reducing poverty than
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bilateral source and loan type. The study further reveals that
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democratic attributes of free expression, institutional constraints on
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the executive, guarantee of civil liberties to citizens and political
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participation reinforce the poverty-reducing effects of aggregate
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foreign aid and its components after controlling for mean household
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income, GDP per capita and inequality. Research limitations/implications
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The methodological concern related to modeling the effects of foreign
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aid on poverty is endogeneity bias. To estimate the relationship between
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foreign aid, democracy and poverty in SSA, this paper relies on a
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2SLS-IV estimator with GDP per capita of the top five aid-sending OECD
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countries scaled by the inverse of land area of the SSA countries as an
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external instrument for foreign aid. The use of the five top OECD''s
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Development Assistance Committee (OECD-DAC) countries is due to the
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availability of foreign aid data for these countries. However,
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non-OECD-DAC countries such as China and South Africa may be important
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source of foreign aid to some SSA countries. Practical implications The
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findings further suggest that the marginal effect of foreign aid in
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reducing poverty is increasing with the level of institutional
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democracy. In other words, foreign aid contributes more to poverty
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reduction in countries with democratic dispensation. This investigation
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has vital implications for future foreign aid policy, because it alerts
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policymakers that the effectiveness of foreign aid can be strengthened
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by considering the type and source of aid. Foreign aid and quality
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political institution may serve as an important mix toward the
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achievement of the Sustainable Development Goals 2030 and the Africa
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Union Agenda 2063. Social implications As the global economy faces
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economic and social challenges, SSA may not be able to depend heavily on
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foreign partners to finance the region''s budget. There is the need for
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African governments to also come out with innovative ways to mobilize
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own resources to develop and confront some of the economic challenges to
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achieve the required reduction in poverty. This is a vision that every
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country in Africa must work toward. Africa must think of new ways of
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generating wealth internally for development so as to complement foreign
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aid flows and also build strong foundation for welfare improvement,
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self-reliance and sustainable development.
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Originality/value This existing literature does not consider how
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democracy enhances the foreign aid and poverty relationship. The
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existing literature does not explore how democracy enhances grants,
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loans, multilateral and bilateral aid effectiveness in reducing poverty.
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This paper provides the first-hand evidence of how institutional
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democracy enhances the poverty-reducing effects of foreign aid and its
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components. The paper uses exogenous variation in foreign aid to
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quantify the direct effect of foreign aid and its components on poverty.'
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affiliation: 'Akobeng, E (Corresponding Author), Lancaster Univ Ghana, Dept Business
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Studies, Accra, Ghana.
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Akobeng, Eric, Lancaster Univ Ghana, Dept Business Studies, Accra, Ghana.'
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author: Akobeng, Eric
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author-email: e.akobeng@lancaster.edu.gh
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author_list:
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- family: Akobeng
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given: Eric
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da: '2023-09-28'
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doi: 10.1108/JES-05-2019-0225
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earlyaccessdate: APR 2020
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files: []
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issn: 0144-3585
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journal: JOURNAL OF ECONOMIC STUDIES
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keywords: Democracy; Poverty; Foreign aid
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keywords-plus: 'POVERTY REDUCTION; DOMESTIC SAVINGS; GROWTH; REMITTANCES; POLICIES;
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INEQUALITY; ASSISTANCE; IMPACT'
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language: English
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month: OCT 26
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number: '7'
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number-of-cited-references: '67'
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pages: 1689-1710
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papis_id: 9672336f473d48f5accafcbf54f30ffb
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ref: Akobeng2020harnessingforeign
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times-cited: '3'
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title: 'Harnessing foreign aid for the poor: role of institutional democracy'
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type: Article
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unique-id: WOS:000530055200001
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usage-count-last-180-days: '5'
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usage-count-since-2013: '19'
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volume: '47'
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web-of-science-categories: Economics
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year: '2020'
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