The Long Run Effects of Foreign Aid on Economic Growth by Sector of Distribution

Abstract

In this paper we explore the long run effects of a country’s economic growth for a panel of 69 developing countries for the period 2002 to 2017. The results suggest that the foreign aid that is given towards social infrastructure has a statistically significant “multiplier effect” where an increase in foreign aid by approximately $48 will increase economic growth by 1%. Foreign aid given towards social infrastructure includes money being spent on all levels of education which could further emphasize the importance of education for long run economic growth. Foreign aid given towards economic infrastructure or production sectors is either not statistically significant or has a negative correlation.