The effect of foreign aid on economic growth empirical evidence from east africa

ADDIS ABABA UNIVERSITY SCHOOL OF GRADUATE STUDIES THE EFFECT OF FOREIGN AID ON ECONOMIC GROWTH: EMPIRICAL EVIDENCE FROM EAST AFRICA BY: Yoseph Weldemariam ADVISOR: Kidist Gebreselassie (PhD) A Thesis Submitted to The center for African and Oriental studies Presented in Partial Fulfillment of the Requirements for the Degree of Master of Arts (Human and Economic Development in Africa) Addis Ababa University Addis Ababa, Ethiopia June, 2017 ADDIS ABABA UNIVERSITY SCHOOL OF GRADUATE STUDIES This is to certify that the thesis carry out by Yoseph Weldemariam entitled: The Effect of Foreign Aid on Economic Growth: Empirical Evidence from East Africa The research is submitted in partial fulfillment of the requirements for the degree of master of art in (human and economic development in Africa) complies with the regulations of the University and meets the accepted standards with respect to originality and quality Signed by the Examining Committee: Name of Internal Examiner _ Name of External Examiner _ Name of Advisor _ Name of the Chairperson _ Signature Date Signature Date _ Signature Date Signature Date _ Chair of Department or Graduate Program Coordinator Addis- Ababa University June, 2017 ACKNOWLEDGEMENTS I sincerely wish to express my gratitude to both family members and my friends who are always behind my success My words of gratitude would go to my advisor Dr Kidist Gebreselassie for her supervision, valuable guidance, intellectual encouragement, and critical and constructive comments on the structure and organization of this research I want to express my maximum respect to her I am also grateful to Alemta Gerima, Yohaness Gebrezigiher and Friat Gebreslassie for their encouragements throughout my study i Table of Contents Contents pages Acknowledgements i Table of Contents .ii List of Tables v List of Figures vi List of Acronyms vii ABSTRACT viii CHAPTER ONE 1 INTRODUCTION 1.1 Background of the Study 1.2 Statement of the Problem 1.3 Objective of the study 1.4 Significance of the Study 1.5 Scope and Limitations of the study 1.6 Organization of the thesis CHAPTER TWO Theoretical and Empirical Literature Review of Foreign Aid 2.1 Introduction 2.2 Concept of Foreign Aid 2.2.1 Advantages and dis advantages of Foreign Aid 2.3 Aid Effectiveness 11 2.4 Theories of Foreign Aid and Economic Growth 12 2.4.1 The Harrod-Domar Growth Model 12 2.4.2 The Solow Growth Model 13 2.5 Foreign Aid and Economic Growth in Sub-Saharan Africa 17 2.5.1 Empirical literature on aid-growth relationship from East Africa 19 ii CHAPTER THREE 24 Research Methods 24 3.1 Introduction 24 3.2 Data Source and Description of Variables 24 3.2.1 Data Source 24 3.2.2 Description of Variables 25 3.3 Model Specification 28 3.4 Econometric Model 29 3.5 Estimation Method 30 3.5.1 Generalized Method of Moments (GMM) 30 3.5.2 Testing the Estimation Method 33 CHAPTER FOUR 35 Data Analysis, Results and Discussions 35 4.1 Introduction 35 4.2 Descriptive Analysis 35 4.2.1 Summary Statistics of Variables included in the model 35 4.2.2 Trend in real per capita GDP growth 36 4.2.3 Trend in Official Development Assistance (ODA) 40 4.2.4 Aid Unpredictability and Paris Declaration on aid effectiveness 41 4.2.5 Other Variables Included in the Model 43 4.3 Test Results 43 4.3.1 Multicollinearity Test 44 4.3.2 Stationarity Test 44 4.3.3 Autocorrelation Test 45 4.3.4 Testing for Heteroscekasticvity 46 4.4 Econometric Analysis 46 4.4.1 The Effect of Foreign Aid on Growth 47 iii 4.4.1.1 Regression Results of GMM Estimators 48 4.4.1.2 System GMM Estimation Techniques 50 CHAPTER FIVE 54 Conclusions 54 References 57 Appendexis 63 iv List of Tables Table 3.1 Descriptive of Variables used in the regression model 25 Table 4.1 Summary Statistics for the Data of East African Samples 36 Table 4.2 Mean of aid unpredictability for the four countries 43 Table 4.3 the Pairwise Correlation Test Matrix 44 Table 4.4 Levin-Lin-Chu unit root test 45 Table 4.5 Arellano-Bond test for zero autocorrelation in system GMM 45 Table.4.6 OLS, Fixed Effects (FE), Random Effects (RE), First Difference GMM and System GMM estimation: dependent variable GRPCGDP 47 v List of Figures Figure 2.1 Dynamics of the Solow model 15 Figure 2.2The relationship between foreign aid and saving rates in the Solow diagram 16 Figure.2.3 Aid and growth relation in Africa (10 years moving average) 18 Figure 4.1 Trends of per capita GDP for the four countries over 1990-2014 (2010 $USA) 37 Figure 4.2 Trends of growth rate of per capita income for the four countries over 1992014 period 39 Figure 4.3 Aggregate of GRPCGDP for the countries 40 Figure 4.4 Trends of net ODA flows to four of the countries (constant) 41 Figure 4.5 Flows of net ODA to four of the countries (constant) 41 Figure 4.6 The extent of aid unpredictability for individual countries during (19902014) 42 vi List of Acronyms AAA Accra Action for Action ARDL Autoregressive Distributed Lag DAC Development Assistance Committee FA Foreign Aid FDI Foreign Direct Investment FE Fixed Effect GMM Generalized Method of Moments HD Harro-Domar HIPC Highly Indebted Poor Countries LR Likelihood Ratio ODA Official Development Assistance OECD Organization for Economic Cooperation and Development OLS Ordinary Least Square PD Paris Declaration RE Random Effect SSA Sub-Saharan Africa WDI World Development Indicators vii ABSTRACT THE EFFECT OF FOREIGN AID ON ECONOMIC GROWTH: EMPIRICAL EVIDENCE FROM EAST AFRICA Yoseph Weldemariam ADDIS ABABA UNIVERSITY, 2017 There has been an increase in the inflow of Official Development Assistant (ODA) or commonly called foreign aid to less developed countries (LDCs) For the last 50 years, Countries from Sub-Saharan African (SSA) region have particularly been highly dependent on foreign aid to finance their development projects and cover their budget subsidies Several studies have been conducted to examine the impact of foreign aid on economic growth in SSA However, the impact of foreign aid on the region’s economic growth has been found to be inconclusive Some studies find evidence supporting the view that foreign aid is an important factor in driving economic growth while others find evidence suggesting the ineffectiveness of foreign aid in influencing the region’s economic growth In response to the mixed evidence on the economic effect of foreign aid, international initiatives such as the 2005 Paris Declarations have been pushing for reliable and indicative commitments of foreign aid albeit a limited success Other studies pointed to identification problems in the empirical studies, for instance endogeneity of foreign aid as causes, for the inconclusive results This study analyzes the trend of ODA and growth as well as the impact of foreign aid on four selected East African countries, namely Ethiopia, Kenya, Tanzania and Uganda using a panel data from 1990 to 2014 The ODA and growth have been increasing in the countries over the study period In doing so it compares the results of the different techniques i.e., OLS, FE, RE, difference GMM and system GMM used in the aid-growth literature Looking at the results of the various estimation techniques based on augmented NeoClassical Growth theory expectation the system GMM techniques provide better estimation results in terms of expected signs and significance which may due to the capacity of system GMM technique to address endogeniety and other issues Accordingly, foreign aid was found to have a statistically positive and significant effect on the growth of real per capita GDP of the countries included in the study The empirical model controls for gross fixed capital formation, human capital accumulation, population growth; international agreement made to improve aid effectives and disbursement i.e., the Paris Declaration (2005) The contributions of Paris Declaration on aid effectiveness and aid unpredictability are found to be statistically insignifican Keywords: Aid-unpredictability, Foreign-Aid, East Africa, 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Econometric Society, 817-838 Willis, E, C et al (1978) Multicollinearity : effects, symptoms , and remedies J OF The Northern AGR Econ Council, VOL VII, NO.1 Wooldridge, J M (2010) Econometric analysis of cross section and panel data.MIT press Wooldridge, J M (2012) Introductory economics: Modern approach 5nd edition, Michigan state University 62 APPENDEXIS APENDEX 1: DATA USED IN THE STUDY year 1990 1991 1992 1993 1994 1995 1996 1997 country Ethiopia Ethiopia Ethiopia Ethiopia Ethiopia Ethiopia Ethiopia Ethiopia GRPCGDP -.0074 -.1093 -.12657 08778 -.0033 02624 08549 00056 lnODAcon 21.2089 21.2623 21.2704 21.2196 21.18 20.91 20.84 20.587 lnGFCFcon 20.967 20.727 20.439 20.6629 20.8887 20.958 20.9318 21.216 lnTEREROM 10.42 10.44 10.4 10.34 10.28 10.39 10.464 10.61 POPGRWTH 3.44 3.53 3.59 3.57 3.47 3.323 3.2 3.03 UNPREDAID 0 1109238 1779101 0706744 1224005 PARIS2005 0 0 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Ethiopia Ethiopia Ethiopia Ethiopia Ethiopia Ethiopia Ethiopia Ethiopia Ethiopia Ethiopia Ethiopia Ethiopia Ethiopia Ethiopia Ethiopia Ethiopia Ethiopia Kenya Kenya Kenya Kenya Kenya Kenya Kenya Kenya Kenya Kenya Kenya Kenya Kenya Kenya Kenya -.0645 02137 03004 05082 -.0137 -.0504 09903 08389 07548 08144 07576 0579 09208 08007 05731 07523 07277 00734 -.0187 -.0403 -.02774 -.00389 0147 01385 -.02076 00763 -.00181 -.01894 01175 -.02022 00296 02370 20.7391 20.69 20.80 21.286 21.425 21.4866 21.5274 21.5557 21.5754 21.717 21.94 22.116 22.00895 21.964 21.8998 22.0802 21.98749 21.3434 21.0155 20.9461 20.9997 20.6558 20.595 20.4696 20.2760 20.2107 19.8802 20.4382 20.435 20.1839 20.359 20.4915 21.227 21.266 21.221 21.323 21.44 21.34 21.55 21.569 21.738 21.973 21.956 22.258 22.31031 22.36 22.392 22.434 22.53847 21.4574 21.4878 21.3804 21.4695 21.5668 21.6478 21.7084 21.7391 21.817 21.809 21.889 22.005 21.942 21.859 21.9302 10.72.665 10.865 11.12 11.38 11.53 11.905 12.056 12.16 12.25 12.34 12.49 12.904 13.266 13.36 13.45 13.49 13.54 11.397 11.397 11.14 11.22 11.239 11.265 11.29 11.3145 11.35 11.397 11.397 11.46 11.494 11.557 11.597 2.94 2.9 2.9 2.9 2.88 2.86 2.82 2.78 2.74 2.701 2.67 2.64 2.62 2.59 2.563 2.54 2.51 3.37 3.305 3.230 3.123 2.99 2.83 2.68 2.55 2.47 2.46 2.49 2.53 2.57 2.594 2.61 3988514 0027704 0478361 3044364 2857978 2774588 0955566 1529489 0 4941448 1022395 1452565 3943325 0 0 1940093 2876184 2589703 9316627 709663 0 4713138 0 0 0 0 1 1 1 1 0 0 0 0 0 0 0 63 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1990 1991 1992 1993 1994 1995 1996 1997 1998 Kenya Kenya Kenya Kenya Kenya Kenya Kenya Kenya Kenya Kenya Tanzania Tanzania Tanzania Tanzania Tanzania Tanzania Tanzania Tanzania Tanzania Tanzania Tanzania Tanzania Tanzania Tanzania Tanzania Tanzania Tanzania Tanzania Tanzania Tanzania Tanzania Tanzania Tanzania Tanzania Tanzania Uganda Uganda Uganda Uganda Uganda Uganda Uganda Uganda Uganda 03126 03655 04002 -.0240 00607 05408 03261 01779 02870 02550 03709 -.01224 -.02761 -.0211 -.01613 0055127 01711 00902 01173 02254 02271 0319 0422 0388 0468 04925 01546 05045 0228 02083 02995 0443 0183 03844 03584 02908 02073 0008 04786 03057 07813 0565 01987 01801 20.608 20.7982 21.0683 21.0637 21.3562 21.2569 21.6263 21.7074 21.9205 21.6928 21.379 21.26 21.4255 21.1438 21.0958 20.88 20.9119 21.0849 21.1358 21.144 21.198 21.4047 21.43 21.5669 21.499 21.305 21.5069 21.8375 21.588 21.861 21.857 21.6047 21.7677 21.956 21.6899 20.78 20.7439 20.7911 20.656 20.826 20.8435 20.658 20.926 20.72 22.1755 22.4512 22.4729 22.5939 22.6889 22.8186 22.8650 22.9842 22.9966 23.1343 21.7789 21.89 21.87 21.75 21.76 21.601 21.5743 21.578 21.71012 21.77 21.827 21.94 22.017 22.148 22.2468 22.389 22.5469 22.7023 22.82 22.812 22.921 23.1179 23.1278 23.1714 23.2919 20.76 20.79 20.7426 20.7957 20.893 21.236 21.33 21.313 21.334 64 11.64 11.78 11.9 11.96895 12.032 12.095 12.152 12.213 12.282 12.33 8.8 8.92 8.985 9.143 9.26 9.46 9.61 9.79 9.81 9.85 9.94 9.99 10.069 10.34 10.67 10.85 11.0011 11.069 11.13 11.24796 11.3574 9.43811 12.01983 11.97 12.028 9.77 9.97 9.98 10.091 10.23 10.32 10.46 10.54 10.58 2.61 2.61 2.62 2.63 2.65 2.66 2.67 2.67 2.67 2.64 3.17 3.28 3.35 3.32 3.18 2.96 2.74 2.57 2.47 2.48 2.55 2.63 2.7 2.78 2.86 2.94 3.01 3.08 3.13 3.164 3.174 3.18 3.18 3.17 3.15 3.4 3.33 3.27 3.21 3.15 3.09 3.03 2.99 2.97 4814492 8113205 08459 7360797 4476202 8602308 8812695 3702016 4172973 5169891 009361 0 1155692 07336 2889171 4028943 0 2594296 121793 235372 1037781 4774335 5531802 0698407 0 0 2913889 3415752 1099662 0895916 0258521 0 3958669 1 1 1 1 0 0 0 0 0 0 0 0 1 1 1 1 0 0 0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Uganda Uganda Uganda Uganda Uganda Uganda Uganda Uganda Uganda Uganda Uganda Uganda Uganda Uganda Uganda Uganda 04705 -.00032 01835 05080 0292 0322 0277 06880 04717 04997 03207 0219 05682 00488 00238 018 20.631 21.027 21.02 20.841 21.013 21.12 21.077 21.321 21.34 21.236 21.358 21.295 21.169 21.23 21.254 21.23 21.47887 21.396 21.434 21.497 21.622 21.727 21.849 22.032 22.180 22.24 22.264 22.35 22.475 22.502 22.595 22.62 10.61 10.923 11.044 11.29 11.39 11.39 11.412 11.436 11.515 11.587 11.73 11.703 11.85 11.912 11.975 12.034 3.04 3.13 3.22 3.29 3.34 3.36 3.36 3.36 3.36 3.35 3.34 3.32 3.296 3.274 3.259 3.253 2867134 0963163 2411272 2829136 0327884 1367407 0710682 1755957 3614684 3713025 2058942 0 119252 1677535 0 0 0 1 1 1 1 APPENDIX II: DESCRIPTIVE STATISTICS Table A2: Descriptive Statistics for the panel data sum RPCGDP GRPCGDP lnODAcon lnGFCFcon lnTEREROM POPGRWTH UNPREDAID PARIS2005 Variable Obs Mean RPCGDP GRPCGDP lnODAcon lnGFCFcon lnTEREROM 100 100 100 100 100 552.689 0229936 21.1732 21.88413 11.15616 POPGRWTH UNPREDAID PARIS2005 100 100 100 2.97178 2215793 36 Std Dev Min Max 260.6828 0382339 4755141 663078 1.033136 163.7659 -.1265798 19.88029 20.43919 8.875707 1101.23 0990314 22.11637 23.29198 13.53735 3194289 27553 4824182 2.461046 0 3.5862 1 Table A2: Descriptive Statistics for Ethiopia sum RPCGDP GRPCGDP lnODAcon lnGFCFcon lnTEREROM POPGRWTH UNPREDAID PARIS2005 if id == Variable Obs Mean RPCGDP GRPCGDP lnODAcon lnGFCFcon lnTEREROM 25 25 25 25 25 249.4165 0311187 21.41195 21.50782 11.68831 POPGRWTH UNPREDAID PARIS2005 25 25 25 2.945048 145758 36 Std Dev 65 Min Max 84.99428 0638361 4747339 6209547 1.177454 163.7659 -.1265798 20.58703 20.43919 10.27505 454.7732 0990314 22.11637 22.53847 13.53735 3497307 226631 4898979 2.506809 0 3.5862 1 Table A2: Descriptive Statistics for Kenya sum RPCGDP GRPCGDP lnODAcon lnGFCFcon lnTEREROM POPGRWTH UNPREDAID PARIS2005 if id == Variable Obs Mean RPCGDP GRPCGDP lnODAcon lnGFCFcon lnTEREROM 25 25 25 25 25 POPGRWTH UNPREDAID PARIS2005 25 25 25 Std Dev Min Max 912.8576 0071262 20.85598 22.11567 11.63507 78.14483 836.2352 0243556 -.0403323 5459203 19.88029 5558515 21.3804 3752196 11.14011 1101.23 0540857 21.92053 23.13439 12.32686 2.730647 4278155 36 2611407 3839558 4898979 3.374493 1 2.461046 0 Table A2: Descriptive Statistics for Tanzania sum RPCGDP GRPCGDP lnODAcon lnGFCFcon lnTEREROM POPGRWTH UNPREDAID PARIS2005 if id == Variable Obs Mean RPCGDP GRPCGDP lnODAcon lnGFCFcon lnTEREROM 25 25 25 25 25 POPGRWTH UNPREDAID PARIS2005 25 25 25 Std Dev Min Max 580.3569 0213715 21.4217 22.25482 10.27226 116.063 457.5278 022159 -.0276136 3047033 20.88108 5785771 21.5743 9992115 8.875707 812.563 0504599 21.956 23.29198 12.02835 2.970044 1606167 36 2770446 192059 4898979 3.350567 5531802 2.474915 0 Table A2: Descriptive Statistics for Uganda sum RPCGDP GRPCGDP lnODAcon lnGFCFcon lnTEREROM POPGRWTH UNPREDAID PARIS2005 if id == Variable Obs Mean RPCGDP GRPCGDP lnODAcon lnGFCFcon lnTEREROM 25 25 25 25 25 468.1252 0323579 21.00319 21.65823 11.02899 POPGRWTH UNPREDAID PARIS2005 25 25 25 3.241381 152127 36 Std Dev Min Max 119.7329 0211112 2404997 6202343 7160408 303.074 -.000329 20.63088 20.74262 9.774404 661.0536 0781331 21.3583 22.61925 12.03737 1288605 1352644 4898979 2.98691 0 3.405819 3958669 66 APPENDIX III: TESTS Table A3 Pair wise correlation test corr GRPCGDP lnODAcon lnGFCFcon lnTEREROM POPGRWTH UNPREDAID PARIS2005 (obs=100) GRPCGDP lnODAcon lnGFCF~n lnTERE~M POPGRWTH UNPRED~D PAR~2005 GRPCGDP lnODAcon lnGFCFcon lnTEREROM POPGRWTH UNPREDAID PARIS2005 1.0000 0.3452 1.0000 0.2718 0.5251 1.0000 0.3391 0.3861 0.4987 1.0000 -0.2072 0.0363 -0.3211 -0.3712 1.0000 -0.0426 -0.1567 0.2213 0.1427 -0.2973 0.3485 0.6443 0.7865 0.6327 -0.0995 1.0000 0.1591 1.0000 Table A3 Autocorrelation test estat abond Arellano-Bond test for zero autocorrelation in first-differenced errors Order z -1.5032 -1.1717 Prob > z 0.1328 0.2413 H0: no autocorrelation Table A3 One-way ANOVA test for RPCGDP mean difference between the countries oneway RPCGDP id, tabulate id Summary of Real Per capita GDP Mean Std Dev Freq Ethiopia Kenya Tanzania Uganda 249.41647 912.85763 580.35688 468.12521 84.994278 78.144832 116.06298 119.73288 25 25 25 25 Total 552.68905 260.68284 100 Source Between groups Within groups Total Analysis of Variance SS df MS 5740305.36 987293.303 96 1913435.12 10284.3052 6727598.66 99 67955.5421 Bartlett's test for equal variances: chi2(3) = 67 F Prob > F 186.05 6.4262 0.0000 Prob>chi2 = 0.093 Table A3: LR test for Heteroscekasticvity xtgls GRPCGDP lnODAcon lnGFCFcon lnTEREROM Iteration 1: tolerance = 00694709 Iteration 2: tolerance = 00426029 Iteration 3: tolerance = 00200212 Iteration 4: tolerance = 00107147 Iteration 5: tolerance = 00063133 Iteration 6: tolerance = 0003919 Iteration 7: tolerance = 00024942 Iteration 8: tolerance = 00016053 Iteration 9: tolerance = 00010383 Iteration 10: tolerance = 00006729 Iteration 11: tolerance = 00004365 Iteration 12: tolerance = 00002833 Iteration 13: tolerance = 00001838 Iteration 14: tolerance = 00001193 Iteration 15: tolerance = 7.745e-06 Iteration 16: tolerance = 5.027e-06 Iteration 17: tolerance = 3.263e-06 Iteration 18: tolerance = 2.118e-06 Iteration 19: tolerance = 1.375e-06 Iteration 20: tolerance = 8.921e-07 Iteration 21: tolerance = 5.790e-07 Iteration 22: tolerance = 3.758e-07 Iteration 23: tolerance = 2.439e-07 Iteration 24: tolerance = 1.583e-07 Iteration 25: tolerance = 1.028e-07 Iteration 26: tolerance = 6.670e-08 Cross-sectional Coefficients: Panels: Correlation: Estimated Estimated Estimated Log time-series covariances autocorrelations coefficients likelihood GRPCGDP Coef lnODAcon lnGFCFcon lnTEREROM POPGRWTH UNPREDAID PARIS2005 _cons 0224995 -.0089203 0041549 -.0178974 -.0056899 0111962 -.2542631 estimates store Cross-sectional Coefficients: Panels: Correlation: Log lrtest df = 214.4831 Std Number of obs Number of groups Time periods Wald chi2(6) Prob > chi2 Err z 0085436 0079937 0032979 0096821 0099938 0112257 2086353 covariances autocorrelations coefficients Coef local time-series 0167253 -.0078381 0035353 -.0272819 -.0141347 0201715 -.1220974 = = = 2.63 -1.12 1.26 -1.85 -0.57 1.00 -1.22 P>|z| 0.008 0.264 0.208 0.065 0.569 0.319 0.223 [95% = = = = = Conf .0057544 -.0245877 -.0023089 -.036874 -.0252775 -.0108057 -.6631807 100 25 22.25 0.0011 Interval] 0392446 0067471 0106188 0010792 0138976 0331982 1546545 FGLS lnTEREROM POPGRWTH UNPREDAID PARIS2005, igls regression generalized least squares homoskedastic no autocorrelation GRPCGDP regression lnGFCFcon lnODAcon lnGFCFcon lnTEREROM POPGRWTH UNPREDAID PARIS2005 _cons igls hetero likelihood PARIS2005, hetero xtgls GRPCGDP lnODAcon Iteration 1: tolerance = Estimated Estimated Estimated UNPREDAID generalized least squares heteroskedastic no autocorrelation estimates store invalid syntax r(198); FGLS POPGRWTH = e(N_g) hetero , Likelihood-ratio test (Assumption: nested - = = = = 196.6428 Std Number of obs Number of groups Time periods Wald chi2(6) Prob > chi2 Err .010049 0092856 0047325 0134044 0138637 0152711 297533 z 1.66 -0.84 0.75 -2.04 -1.02 1.32 -0.41 P>|z| 0.096 0.399 0.455 0.042 0.308 0.187 0.682 [95% = = = = = Conf -.0029705 -.0260375 -.0057403 -.0535541 -.0413071 -.0097592 -.7052514 100 25 26.19 0.0002 Interval] 036421 0103613 0128109 -.0010097 0130377 0501022 4610565 df(93) in LR chi2(93) Prob > chi2 hetero) 68 = = 35.68 1.0000 panels(heteroske APPENDIX IV: RESULTS OF REGRESSION Table A4: Regression Results Using OLS reg GRPCGDP lnODAcon lnGFCFcon lnTEREROM POPGRWTH UNPREDAID PARIS2005 DEthi0 DTanzania Dkenya Source SS df MS Model Residual 051098129 093623392 90 00567757 00104026 Total 144721521 99 001461834 GRPCGDP Coef lnODAcon lnGFCFcon lnTEREROM POPGRWTH UNPREDAID PARIS2005 DEthi0 DTanzania Dkenya _cons 0168044 0088699 0021666 -.0512589 -.0013692 0011741 -.023401 -.0355683 -.0539307 -.3706549 Std Err .0136628 0165569 0087352 0146712 0138347 0162179 0129976 0197883 0121705 3925237 t Number of obs F(9, 90) Prob > F R-squared Adj R-squared Root MSE P>|t| 1.23 0.54 0.25 -3.49 -0.10 0.07 -1.80 -1.80 -4.43 -0.94 0.222 0.593 0.805 0.001 0.921 0.942 0.075 0.076 0.000 0.348 = = = = = = 100 5.46 0.0000 0.3531 0.2884 03225 [95% Conf Interval] -.0103391 -.0240234 -.0151874 -.0804057 -.0288543 -.0310456 -.0492229 -.0748813 -.0781096 -1.150472 043948 0417631 0195206 -.0221121 0261159 0333937 0024209 0037447 -.0297518 409162 Table A4: Regression Results Using Fixed Effect xtreg GRPCGDP lnODAcon lnGFCFcon lnTEREROM POPGRWTH UNPREDAID PARIS2005, fe Fixed-effects (within) regression Group variable: id Number of obs Number of groups R-sq: Obs per group: within = 0.3040 between = 0.4906 overall = 0.1413 corr(u_i, Xb) = = 100 = avg = max = 25 25.0 25 = = 6.55 0.0000 F(6,90) Prob > F = -0.4485 GRPCGDP Coef Std Err t lnODAcon lnGFCFcon lnTEREROM POPGRWTH UNPREDAID PARIS2005 _cons 0168044 0088699 0021666 -.0512589 -.0013692 0011741 -.3988799 0136628 0165569 0087352 0146712 0138347 0162179 3958955 sigma_u sigma_e rho 0226173 03225306 32964401 (fraction of variance due to u_i) 1.23 0.54 0.25 -3.49 -0.10 0.07 -1.01 F test that all u_i=0: F(3, 90) = 6.75 P>|t| 0.222 0.593 0.805 0.001 0.921 0.942 0.316 [95% Conf Interval] -.0103391 -.0240234 -.0151874 -.0804057 -.0288543 -.0310456 -1.185395 043948 0417631 0195206 -.0221121 0261159 0333937 3876357 Prob > F = 0.0004 end of do-file 69 Table A4: Regression Results Using Random Effect xtreg GRPCGDP lnODAcon Random-effects GLS Group variable: id lnGFCFcon lnTEREROM POPGRWTH regression Number Number R-sq: Obs within between overall corr(u_i, = = = X) UNPREDAID of of per obs groups avg max Wald Prob (assumed) GRPCGDP Coef Std Err lnODAcon lnGFCFcon lnTEREROM POPGRWTH UNPREDAID PARIS2005 DEthi0 DTanzania Dkenya _cons 0168044 0088699 0021666 -.0512589 -.0013692 0011741 -.023401 -.0355683 -.0539307 -.3706549 0136628 0165569 0087352 0146712 0138347 0162179 0129976 0197883 0121705 3925237 sigma_u sigma_e rho 03225306 (fraction z of chi2(9) > chi2 P>|z| 1.23 0.54 0.25 -3.49 -0.10 0.07 -1.80 -1.80 -4.43 -0.94 [95% 0.219 0.592 0.804 0.000 0.921 0.942 0.072 0.072 0.000 0.345 variance due DEthi0 = = 100 = = = 25 25.0 25 = = 49.12 0.0000 DTanzania Dkenya, re group: 0.3040 1.0000 0.3531 = PARIS2005 Conf -.0099742 -.0235811 -.0149541 -.0800138 -.0284848 -.0306124 -.0488758 -.0743527 -.0777845 -1.139987 to Interval] 0435831 0413209 0192872 -.0225039 0257464 0329605 0020738 0032161 -.0300768 3986775 u_i) Table A4: Regression Results Estimation using Difference GMM xtabond GRPCGDP lnODAcon Arellano-Bond dynamic Group variable: id Time variable: year lnGFCFcon panel-data lnTEREROM estimation POPGRWTH Number Number Obs UNPREDAID of of per obs groups of One-step instruments = 92 Wald Prob = = 92 = = = 23 23 23 chi2(3) > chi2 = = 3.47 0.3244 results (Std Robust Std Err Err adjusted z P>|z| for clustering GRPCGDP L1 .085135 068213 1.25 0.212 -.0485601 2188301 lnODAcon lnGFCFcon lnTEREROM POPGRWTH UNPREDAID PARIS2005 _cons 0089719 0071583 0031059 -.0520324 -.002203 0055728 -.2080187 0045403 0140965 0031331 0152593 0125152 0122386 3105392 1.98 0.51 0.99 -3.41 -0.18 0.46 -0.67 0.048 0.612 0.322 0.001 0.860 0.649 0.503 0000731 -.0204703 -.0030349 -.08194 -.0267322 -.0184144 -.8166643 0178708 0347869 0092467 -.0221248 0223263 02956 400627 of do-file 70 D.POPGRWTH Conf id) Coef D.lnTEREROM [95% on GRPCGDP Instruments for differenced equation GMM-type: L(2/.).GRPCGDP Standard: D.lnODAcon D.lnGFCFcon D.PARIS2005 Instruments for level equation Standard: _cons end lags(1) group: avg max Number PARIS2005, Interval] D.UNPREDAID vce(robust) ar Table A4: Regression Results Estimation using System GMM xtdpdsys GRPCGDP lnODAcon lnGFCFcon lnTEREROM POPGRWTH UNPREDAID PARIS2005, lags(1) vce(robust) artests(2) System dynamic panel-data estimation Group variable: id Time variable: year Number of obs Number of groups = = 96 = avg = max = 24 24 24 = = 295.34 0.0000 Obs per group: Number of instruments = 115 Wald chi2(3) Prob > chi2 One-step results Robust Std Err GRPCGDP Coef GRPCGDP L1 .2184187 0499206 lnODAcon lnGFCFcon lnTEREROM POPGRWTH UNPREDAID PARIS2005 _cons 0120863 0004785 0039262 -.0400577 -.0130947 0048603 -.172476 0032238 0090187 0022087 0108394 0178425 0086956 2604258 z P>|z| [95% Conf Interval] 4.38 0.000 1205761 3162613 3.75 0.05 1.78 -3.70 -0.73 0.56 -0.66 0.000 0.958 0.075 0.000 0.463 0.576 0.508 0057678 -.0171979 -.0004028 -.0613026 -.0480653 -.0121828 -.6829012 0184048 0181549 0082552 -.0188129 0218759 0219033 3379493 Instruments for differenced equation GMM-type: L(2/.).GRPCGDP Standard: D.lnODAcon D.lnGFCFcon D.lnTEREROM D.POPGRWTH D.UNPREDAID D.PARIS2005 Instruments for level equation GMM-type: LD.GRPCGDP Standard: _cons end of do-file 71 ... find evidence suggesting the ineffectiveness of foreign aid in influencing the region’s economic growth In response to the mixed evidence on the economic effect of foreign aid, international... on the economic growth Rather, the growth of per capita had been going down while the aid increased On the other hand, other studies on foreign aid- growth relationship have pro -foreign aid conclusions... Ethiopian economic growth is conditional on macroeconomic policy ii Kenya Much of the aid- growth literature focuses on the of foreign aid drive to bring economic growth in the recipients economy