Foreign Aid, External Debt and Economic Growth Nexus in Low-Income Countries: The Role of Institutional Quality

2012 ◽  
Vol 51 (4II) ◽  
pp. 97-116 ◽  
Author(s):  
Unbreen Qayyum ◽  
Adnan Haider
Keyword(s):  
Economic Growth ◽  
Foreign Aid ◽  
Low Income ◽  
Economic Performance ◽  
Foreign Capital ◽  
Good Governance ◽  
External Debt ◽  
Institutional Quality ◽  
Low Income Countries

Foreign capital and institutional quality simultaneously play an important role in the development process of low-income countries. By and large developing nations fell short of funds necessary to spur the economic growth. Along with this constraint, they are facing the down fall in the quality of governance. Low earned revenues and high government expenditure increase the reliance upon the foreign capital mostly in the form of foreign aid and external debt. Just the availability of foreign funds is not sufficient to stimulate the economic growth, there is a need of good governance along with better quality of institutions that will act as a catalyst and improves the efficiency of capital, [see for instance, Agnor and Montiel (2010)]. Good governance establishes impartial, predictable and consistently enforced rules in the form of institutions and thus crucial for the sustained growth [North (1990 and 1992)]. Those countries which have good institutions show positive growth rates whenever the stock of capital increases but the countries with bad institutions, increase in capital investment may lead to negative growth rates due to rent seeking and other unproductive activities, Hall, et al. (2010). In this context, North (1992) argues that the institutions as well as the ideology shape economic performance. While taking into account the technology used, institutions affect economic performance by determining the cost of transaction and production. Formal rules, informal constraints and characteristics of enforcing those constraints together formulate the institutions. Institutions affect economic performance and the differential in performance of economies is basically influenced by the way institutions evolve. The neoclassical economic theory is of little help in investigating the sources beneath economic performance because institutions are taken for granted in their models Agnor and Montiel (2010).

scholarly journals The Effects of Information and Communication Technology (ICT) Use on Human Development—A Macroeconomic Approach

Economies ◽  
2021 ◽  
Vol 9 (3) ◽  
pp. 128
Author(s):  
Nada Karaman Aksentijević ◽  
Zoran Ježić ◽  
Petra Adelajda Zaninović
Keyword(s):  
Economic Growth ◽  
Human Development ◽  
Communication Technology ◽  
Low Income ◽  
Low Income Countries ◽  
Middle Income ◽  
Ict Use ◽  
Information And Communication ◽  
The Impact

Information and communication technology (ICT) is considered a significant factor in economic growth and development. Over the past two decades, scholars have studied the impact of ICT on economic growth, but there has been little research that has addressed the impact of ICT on human development, which is considered one of the fundamental factors of economic development. This could be especially important from the perspective of developing countries, which can develop faster through the implementation of ICT. Thus, the aim of this paper is to investigate the effects of ICT use on human development, distinguishing effects among high, upper-middle, lower-middle and low-income countries following the World Bank classification 2020. Our sample includes 130 countries in the period from 2007 to 2019. The empirical analysis is based on dynamic panel data regression analysis. We use Generalized Method of Moments (GMM) as an estimator, i.e., two-step system GMM. The results primarily support the dynamic behaviour of human development. The results of the analysis also show that ICT has highly significant positive effects on human development in lower-middle-income and low-income countries, while the effects do not appear to be significant in high- and middle-income countries. This research serves as an argument for the need to invest in ICT and its implementation in low-income countries; however, it also suggests that the story is not one-sided and that there are possible negative effects of ICT use on human development. From the perspective of economic policy, the results can be a guideline for the implementation and use of ICT in developing countries, which could lead to economic growth and development and thus better quality of life. On the other hand, policymakers in developed countries cannot rely on ICT alone; they should also consider other technological innovations that could ensure a better quality of life.

scholarly journals Foreign aid and economic growth in Nigeria: The role of institutional quality

2021 ◽  
Vol 39 (3) ◽  
Author(s):  
Adewale Samuel Hassan
Keyword(s):  
Economic Growth ◽  
Foreign Aid ◽  
Institutional Quality ◽  
Moderating Effect ◽  
Institutional Framework ◽  
Quality Of Institutions ◽  
Positive Effect

This study examined the moderating effect of institutional quality on the foreign aid-economic growth nexus in Nigeria from 1984 to 2018 through the use of Johansen and canonical cointegration regression. Findings from the study indicate that while foreign aid has a separate positive effect on economic growth, the quality of institutions in the country diminishes and leaks out this positive effect. To this end, fiscal authorities in Nigeria need to review the existing institutional framework guiding the sourcing, disbursement and utilization of foreign aid with a view to detecting any loopholes and lapses that encourage diversion of fund and institutionalized corruption which prevent it from promoting growth.

The Effects of Financial Development and Governance Quality on Economic Growth: Evidence from Developed and Developing Countries

2021 ◽  
Vol 40 (1) ◽  
Author(s):  
Assef Filfilan
Keyword(s):  
Economic Growth ◽  
Developing Countries ◽  
Financial Development ◽  
Low Income ◽  
Good Governance ◽  
Principal Component ◽  
Threshold Level ◽  
Low Income Countries ◽  
Domestic Credit ◽  
Governance Quality

This paper investigates the effects of financial development on economic growth with especial emphasis on the role played by governance quality. An indicator of governance built from the Principal Component factor method (PCF) and which takes into account the simultaneous effects of political, institutional and economic governance, is used in mediating such relationship. The study is carried out using a two-step system dynamic GMM method for 93 developed and developing countries over the 1996–2018 period. The findings from the study revealed that the effects of financial development on economic growth various according to the nature of governance and the level of development of countries.  Results show a non-significant effect of financial development on economic growth for low-income countries and a positively significant impact in middle and high-income ones. Estimations demonstrate also that good governance plays an important and significant role in mediating the finance-growth relationship. Finally, results demonstrate that there is a certain threshold level that countries must achieve to make government domestic credit to private sector favorable to economic growth.

scholarly journals Institutional quality and economic growth: Empirical evidence from the Sudanese economy

2014 ◽  
Vol 59 (203) ◽  
pp. 119-137 ◽  
Author(s):  
Constantinos Alexiou ◽  
Persefoni Tsaliki ◽  
Hashim Osman
Keyword(s):  
Economic Growth ◽  
Empirical Evidence ◽  
Economic Performance ◽  
African Country ◽  
Institutional Environment ◽  
Institutional Quality ◽  
Economic Prosperity ◽  
Long Run ◽  
Short Run

This study aims to explore the extent to which conventional methods used in the majority of relevant growth studies can successfully interpret the economic performance of a highly underdeveloped African country such as Sudan. Applying an ARDL boundstesting approach to cointegration proposed by Pesaran et al. (2001), we look into the short-run as well as long-run relationships between institutional and various other key economic variables and economic growth over the period 1972-2008. The empirical results obtained suggest that, for the Sudanese economy, the quality of the institutional environment is one of the most important factors in defining economic prosperity.

Attracting foreign capital as a factor in ensuring the country's economic growth

2020 ◽  
pp. 34-41
Author(s):  
Taras Malyshivskyi ◽  
Volodymyr Stefinin
Keyword(s):  
Economic Growth ◽  
Economic Development ◽  
Foreign Direct Investment ◽  
Low Income ◽  
Direct Investment ◽  
Foreign Capital ◽  
Local Level ◽  
Current Trend ◽  
Raw Material ◽  
Foreign Capital Inflows

The article examines the relationship between attracting foreign capital in the form of foreign direct investment and ensuring economic development. In particular, the analysis of the current structure of the economy is indicated, its raw material character is pointed out and, based on other researches, the necessity of its reform is substantiated, as Ukraine will remain a low-income country if the current trend continues. This is due to the fact that countries with a raw material structure of the economy are characterized by a low level of economic complexity, and therefore are not able to generate high levels of income in society. As a result, the expediency of stimulating the attraction of investment resources into the country’s economy, in particular in the form of foreign direct investment, is substantiated. The dynamics of attracting foreign direct investment to Ukraine and a number of other countries for the period from 1991 to 2019 is analyzed and the key negative factors that deter foreign investors from investing in the economy of Ukraine are indicated. As a result of the analysis, divergent trends in the economic development of Ukraine and other analyzed countries (Poland, Czech Republic, Slovakia, Turkey, Romania, Hungary) were identified, which contributed to economic stagnation and restrained economic growth and development. Taking into account the analysis, as well as based on the concept of investment and innovation growth, it is proposed to use the experience of Israel to improve the country’s investment attractiveness and stimulate foreign capital inflows by adapting the Yozma program to Ukrainian realities. According to our estimates, the adaptation of this program to the Ukrainian economy will attract about $ 350 million over a five-year period of venture capital alone. In addition, programs such as YOSMA can also be implemented at the regional or even local level. We believe that the use of this tool will improve the investment attractiveness of the country, as well as provide sufficient financial resources to modernize the domestic economy and ensure rapid economic growth.

Foreign capital inflows and economic growth: the experience of low-income countries in Sub Saharan Africa

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Atif Awad
Keyword(s):  
Low Income ◽  
Foreign Capital ◽  
Ordinary Least Squares ◽  
Capital Inflows ◽  
Sub Saharan Africa ◽  
Low Income Countries ◽  
Content Type ◽  
Long Run ◽  
Foreign Capital Inflows ◽  
The Impact

Purpose This paper aims to investigate the long-run impact of selected foreign capital inflows, including aid, remittances, foreign direct investment (FDI), trade and debt, on the economic growth of 21 low-income countries in the Sub Saharan Africa (SSA) region, during the period 1990–2018. Design/methodology/approach To obtain this objective and for robust analysis, a parametric approach, which was dynamic ordinary least squares, and a non-parametric technique, which was fully modified ordinary least squares, were used. Findings The results of both models confirmed that, in the long run, trade and aid affected the growth rate of the per capita income in these countries in a positive way. However, external debt seemed to have an adverse influence on such growth. Originality/value First, this is the initial study that has addressed this matter across a homogenous group of countries in the SSA region. Second, while most of the previous studies regarding capital inflows into the SSA region have focused on the impact of only one or two aspects of such foreign capital inflows on growth, the present study, instead, examined the impact of five types of foreign capital inflows (aid, remittances, FDI, trade and debt).

Can foreign aid motivate institutional reform? An evaluation of the HIPC Initiative

2017 ◽  
Vol 6 (2) ◽  
pp. 242-258 ◽  
Author(s):  
Minh Tam Schlosky ◽  
Andrew Young
Keyword(s):  
Foreign Aid ◽  
Developing Economies ◽  
Poor Country ◽  
Civil Liberties ◽  
Institutional Reform ◽  
Institutional Quality ◽  
Entrepreneurial Activity ◽  
Content Type ◽  
Hipc Initiative

Purpose A number of political economy concerns are associated with the provision of foreign aid to developing economies. These concerns suggest that foreign aid is likely to have harmful effects on a recipient’s institutional quality, and that attempts to give aid conditional on policy and institutional reforms are unlikely to succeed. Established in 1996, the Heavily Indebted Poor Country (HIPC) Initiative is a comprehensive, structured attempt to provide multilateral foreign aid conditional on reforms in recipient countries. The purpose of this paper is to evaluate its effectiveness at affecting institutional reform in participating countries. Design/methodology/approach The authors document how participating countries fared in terms of the quality of their policies and institutions. The authors employ the Fraser Institute’s Economic Freedom of the World index as a measure of economic institutions, and the Freedom House political rights (PR) and civil liberties indices as measures of PR and protections. Based on these measures, the authors report unconditional statistics (e.g. average changes) and also regressions of changes in the measures on HIPC Initiative aid allocations and other controls. Findings The authors find that most participating countries experienced either meager increases or outright decreases in institutional quality. The regression results provide no evidence that the Initiative affects meaningful reforms. Originality/value The potential for foreign aid to have deleterious effects on the institutional quality of recipient countries has been of increasing concern to students of economic development. Such effects can have important implications for entrepreneurial activity in these countries. The HIPC Initiative is specifically designed to acknowledge and, indeed, overcome these concerns, leading to actual increases in institutional quality of recipient countries. To the authors’ knowledge, this work is the first to assess whether the promise of the HIPC Initiative is being fulfilled.

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