Effectiveness of foreign aid in sub-Saharan Africa: Does disaggregating aid into bilateral and multilateral components make a difference?

Abstract

Inspired by the contradicting findings of studies on aid effectiveness and the recently emerging dissatisfaction of scholars with the methodologies of earlier works, this study took up the examination of the effectiveness of bilateral and multilateral aids on economic growth. To this end, the study applied the estimation technique of system-GMM (system - generalized method of moments) to panel data of 42 Sub-Saharan African countries collected from secondary sources for the years 1980 through 2007. For the data at hand, there was no evidence for the (conditional or unconditional) effectiveness of both kinds of aid. This result was robust to the use of alternative growth models. Bilateral aid on its own, or in interaction with policy, is ineffective at enhancing economic growth, regardless of whether one measures it relative to the recipients' gross domestic product or in per capita terms. The same holds for multilateral aid. This conclusion confines itself to the data at hand and thus gives no evidence about the effectiveness of the recently emerging aid modalities, which are argued to possess elements of better government accountability, better transparency and better recipient-ownership.