Aid, Aid Volatility and Sectoral Growth in subSaharan Africa

Emmanuel Kumi, Muazu Ibrahim, Thomas Yeboah

OAI: oai:purehost.bath.ac.uk:openaire_cris_publications/97e0bb8a-4cb7-40b6-9bdf-70df35aacd38 • DOI: https://doi.org/10.1080/15228916.2017.1363358

This article examines the impact of aid and its volatility on sectoral growth by relying on panel dataset of 37 sub-Saharan African (SSA) countries for the period 1983-2014. Findings from the system-generalised methods of moments (GMM) show that, while foreign aid significantly drives sectoral growth, aid volatility deteriorates sectoral value additions impacting heavily on non-tradable sectors with no apparent effect on the agricultural sector. The deleterious effect of aid volatility on sectoral value additions in SSA is weakened by a well-developed financial system with significant impact on the tradable sector. Evidently, development of domestic financial markets enhances aid effectiveness.