Abstract

Despite being one of the highest aid recipient regions, the growth performance in Sub-Saharan Africa (SSA) has been rather disappointing. In this paper, we answer two questions. 1) Is there any significant impact of foreign aid on economic growth? 2) Is grant more effective than loans in promoting growth? To answer these questions, we employ a GMM technique for a panel of 27 SSA countries over the period of 1961 to 2009. By using this technique, we are able to control for endogeneity that may arise from explanatory variables. Our results suggest that grant aid is more effective than concessional loans. On average, aggregate aid’s effect on economic growth is not discernable from zero in SSA countries. These questions are important for policymakers of SSA who often face the dilemma of high aid but low growth.

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