Author: Adeyemi A. Ogundipe and Oluyomi Ola-David
Volume: 57 Issue No:2 Year:2015

Abstract: This paper examines the relationship between foreign aid and income per capita using a simple augmentation of the neoclassical cross-country specification for Western African states. The study disaggregated aid into seven categories (agriculture, communication, industrial, engineering, education, health, and food security) and showed that in most cases, aid becomes significant when conditioned on sound macroeconomic policy whereas institutional quality and infrastructural development do not significantly influence the aid-growth relation. Similarly, the study established a decreasing return to aid, as the marginal impact of aid on growth appears negligible in all likelihood. Likewise, trade structure and financial depth do not meaningfully enhance economic development in the region. The study concludes by stressing the need to develop absorptive capacity, ensure sound pro-development policies and urge donors to systematically link aid to performance.

JEL classification: F35, C23, G18, O1, P48