Sectoral Analysis of the Impact of Foreign Aid on Economic Growth in Ethiopia: Time Series Analysis of Agriculture, Education and Health Sectors

Sectoral Analysis of the Impact of Foreign Aid on Economic Growth in Ethiopia: Time Series Analysis of Agriculture, Education and Health Sectors PDF

Author: Fikadu Goshu

Publisher: diplom.de

Published: 2015-02-01

Total Pages: 78

ISBN-13: 3954898586

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This study has examined sectoral analysis of the impact of foreign aid on aggregate and sectoral economic growth in Ethiopia over the period 1981 to 2012 using Multivariate Vector Auto Regression analysis. All the necessary time series tests such as stationary test, co-integration test, weak exiguity test, vector error correction, and causality test in vector error correction model and the like are conducted. The empirical result from the growth equation shows that aid has a significant positive impact on educational sector GDP growth in the long run. On the other hand, foreign aid has positive but insignificant impact on real GDP growth, agriculture GDP growth, and health sector GDP growth of Ethiopia for the period under consideration. Foreign aid is effective in enhancing economic growth at aggregate level of Ethiopia in general and education sector in particular. The result of the study reveals that there is a bi-directional causal relationship between educational GDP and educational foreign aid in Ethiopia. There is also a unidirectional causality between agricultural aid and agricultural GDP growth. However, the health sector does not show any causality with their respective sector aid. This implies that aid allocated for certain sectors is ineffective in achieving its objectives of economic growth. Therefore, aid recipient country like Ethiopia has to work how to enhance the domestic revenue raising capacity of the country which is at the heart of the mechanism to meet the capital required for the economy in times of short falls and ineffectiveness of external resources.

The Impact of Foreign Aid on Government Expenditure in Ethiopia

The Impact of Foreign Aid on Government Expenditure in Ethiopia PDF

Author: Fikadu Goshu

Publisher: GRIN Verlag

Published: 2014-12-17

Total Pages: 76

ISBN-13: 3656862702

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Scientific Study from the year 2014 in the subject Economics - Case Scenarios, Wollega University (Department of Economics), language: English, abstract: This study has examined the impact of foreign aid on government expenditure in Ethiopia over the period 1981 to 2012 using Multivariate Vector Auto Regression analysis. All the necessary time series tests such as stationary test, co-integration, weak exiguity, and other tests are conducted. The empirical result from the long run fungibility equation result indicates that sectoral aid has negative effect on its sector spending in developmental sectors except for agricultural sector government spending. The estimate of agricultural aid also support that a 1percent increase in agricultural aid leads to a 0.83percent increase in agricultural spending. Aid other than health aid also has positive impact on health spending. The positive coefficient of aid other than the health implies that there is an aid diversion towards health sector from the others. The negative coefficients of sectoral aid on the sector spending and the negative coefficients of aid other than sector-specific aid, indicate diversion of aid away from the specific sector. Negative coefficients of explanatory variables may arise when there is a diversion of categorical aid from developmental investment towards non developmental expenditure such as general service government expenditures. The result also shows education aid is fungible both in short and long run. Health aid is fungible in the long run but not in the short run. Agriculture aid is non fungible in both long and short run in Ethiopia. The coefficient of aid other than education aid has positive sign that implies the diversion of foreign aid to the education sector. Foreign aid have also negative impact on all of non developmental government spending In order to get the desired benefit from foreign aid, Ministry of Finance and Economic Development has to set sound financial management system which stimulates economic growth and mitigate any diversion of developmental sector aid to other non developmental expenditure particularly in education and health sectors. Therefore, effective and efficient monitoring system which was purpose oriented utilization of foreign aid is central to make sectoral spending non fungible in Ethiopia.

The Bang for the Birr

The Bang for the Birr PDF

Author: Tewodaj Mogues

Publisher: Intl Food Policy Res Inst

Published: 2008

Total Pages: 95

ISBN-13: 0896291693

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For more than a decade, Ethiopia's government has tried to foster economic growth through agricultural development. Given the public expenditures required to achieve this goal and the limited resources available, policymakers need information on how to most effectively allocate those resources. This report provides that information by examining the relative impact that different types of spending have on rural household welfare. The results are surprising: while agricultural productivity plays a critical role in rural welfare, public spending on agriculture does not have as important an effect on productivity as would be expected. The authors find that expenditure in roads is far more effective in improving rural welfare, although its impact can vary across different regions. Public spending on education has more moderate returns than investments in road infrastructure, but these returns are still larger than those from agricultural spending, as well as being more spread out across regions than those from road infrastructure. Through such findings, the report provides policymakers, analysts, and others in the development arena with a guide to shaping future policies and a basis for additional research.

A Case Study on Aid Effectiveness in Ethiopia

A Case Study on Aid Effectiveness in Ethiopia PDF

Author: Getnet Alemu

Publisher:

Published: 2009

Total Pages: 38

ISBN-13:

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Foreign aid has played a major role in Ethiopia's development effort since the end of World War II. It has been instrumental in bridging the country's savings-investment and foreign exchange gaps. Its importance as a source of financing for the development of capacity building (human capital, administrative capacity, institutional building, and policy reforms) is also unquestionable. Thus, increasing efforts were made to mobilize foreign aid in the last two regimes. Following the change in political regime in 1991 and the adoption of the structural adjustment program in 1992/93 in particular, the country has enjoyed a significant amount of aid. A large and growing inflow of concessionary loans and grants has occurred since 2001, following the issuance of the first poverty reduction strategy paper (known as the Sustainable Development Poverty Reduction Program) from 14 multilateral sources--mainly IDA, EC, the Global Fund, and the African Development Fund and more than 30 bilateral sources--mainly the USA, UK, Italy, Canada, Germany, Ireland, Japan, Netherlands, Norway, and Sweden. ... We have seen that Ethiopia has been one of the major recipients of international aid in recent times. The health sector is among the few that enjoyed large shares of ODA. A large and growing inflow of aid followed the development of the Health Sector Development Plans (HSDPs) by MoH. Resources were delivered by ten multilateral sources, more than 22 bilateral sources, and more than 50 international NGOs. Getting the complete picture on the flow of aid in the health sector is very difficult because of problems associated with the disbursement channel itself. This problem may be understood better by briefly looking into the three disbursement channels practiced in Ethiopia. It could be said that funds disbursed through "channel 1," MoFED, are immune to data reporting problems: they are invariably captured in the budget. Funds disbursed through "channel 2" via sector bodies, are disbursed outside the mainstream government budget and thus might not be captured. As noted by MoFED (2005), some federal line ministries deal directly with donors and may spend funds without notifying MoFED, let alone reporting to MoFED. Funds through "channel 3" are those disbursed directly by donors without involving any government agency; they are usually not captured in the budget and, disturbingly, are not reported at all in many cases. In some cases they do report to the regional bureaus or to the sectoral ministry concerned but these parties may not report to MoFED. There seems to be no systematically organized and comprehensive data available on a regular and consistent basis regarding the trends of aid flows to the health sector--either by MoFED or MoH.

Structural change and poverty reduction in Ethiopia: Economy-wide analysis of the evolving role of agriculture

Structural change and poverty reduction in Ethiopia: Economy-wide analysis of the evolving role of agriculture PDF

Author: Dorosh, Paul

Publisher: Intl Food Policy Res Inst

Published: 2018-09-06

Total Pages: 35

ISBN-13:

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This paper explores these issues for Ethiopia utilizing an economy-wide computable general equilibrium (CGE) model based on a detailed social accounting matrix (SAM). We present the results of four alternative investment scenarios -- faster investment in i) cities; ii) crop agriculture; iii) the rural non-farm sector and agro-industry; and iv) livestock. The simulations suggest that investments in cities generate faster economic growth and structural transformation. However, given the large share of the population with incomes linked to agriculture and the rural economy, investments in the rural economy are likely to continue to be more pro-poor than urban public investments through the mid-2020s. After the mid-2020s, investments in cities become more pro-poor. In short, though rapid economic growth and structural transformation have diminished the relative importance of the agricultural sector in Ethiopia’s economy, continued public investments in agriculture and the broader agri-food system remain crucial for equity and poverty alleviation in Ethiopia, as well as for reducing food import dependency.

Assessing Aid

Assessing Aid PDF

Author:

Publisher: World Bank Publications

Published: 1998

Total Pages: 164

ISBN-13: 9780195211238

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Assessing Aid determines that the effectiveness of aid is not decided by the amount received but rather the institutional and policy environment into which it is accepted. It examines how development assistance can be more effective at reducing global poverty and gives five mainrecommendations for making aid more effective: targeting financial aid to poor countries with good policies and strong economic management; providing policy-based aid to demonstrated reformers; using simpler instruments to transfer resources to countries with sound management; focusing projects oncreating and transmitting knowledge and capacity; and rethinking the internal incentives of aid agencies.

The Effect of Foreign Aid in Promoting Economic Growth in Zambia (1986 - 2018)

The Effect of Foreign Aid in Promoting Economic Growth in Zambia (1986 - 2018) PDF

Author: Daniel Tonga

Publisher: GRIN Verlag

Published: 2020-01-23

Total Pages: 85

ISBN-13: 3346101975

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Master's Thesis from the year 2019 in the subject Economics - Case Scenarios, University of Lusaka (University of Lusaka UNILUS), course: Economics and Finance, language: English, abstract: This research study has analyzed the effects of foreign aid in promoting economic growth in Zambia. The study used available data in Zambia from 1986 – 2018. The study adopted the ARDL model for investigating the short and long time relationship between foreign aid and Gross Domestic Product GDP. The hypothesis of foreign aid having an effect on economic growth was explored and examined. This study sought to archive the following objectives: To establish whether there is a connection between foreign aid and economic growth in Zambia and determine whether foreign aid significantly contributed to Zambia’s economic growth in the period under review. For policy implications, this study also analyzed the determinant of economic growth in Zambia over the same period. The results clearly revealed a positive relationship between foreign aid and Zambia’s economic growth in a given period that was under investigation. The findings in this study affirm that foreign aid may be important in promoting economic growth. This study also asserts that foreign aid may be effective in improving the quality and lives of people if used effectively. Thus, the outcome of this study recommends that foreign aid be directed towards the promotion of investment because its proper use can promote and boots the country’s economic growth. For policy implications, this study also found that independent variables such as Foreign Direct Investment FDI, Population Growth, Government Expenditure and Consumer Price Index as important and determinants of economic growth in Zambia over the same period. Thus, this study found that important drivers of economic growth included foreign aid inflow, population growth, investment whilst government expenditure and inflation affected GDP negatively, thus their impact was insignificant and negligible. This study furthers found efficiency and effectiveness of programs by government supported by foreign aid being effective to promote growth, hence, the reason why it is important for traditional donors to support government in many sectors.

The Impact of Foreign Aid on Government Expenditure in Ethiopia

The Impact of Foreign Aid on Government Expenditure in Ethiopia PDF

Author: Abas Mohammed

Publisher: LAP Lambert Academic Publishing

Published: 2014-08-12

Total Pages: 80

ISBN-13: 9783659587221

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Foreign aid has been an identified issue among researchers for the last seven decades through various debatable questions in different period.Given, absence of common consensus among researchers regarding the issues raised, foreign aid continued to play an important role in developing countries, especially in sub Saharan African countries. Foreign aid affects the economic growth through different ways of which the impact on government expenditure is one of them. The empirical analysis on this area is not well researched in Ethiopia. This study tries to fill the gap and uses latest and more detailed data.The study primarily assess relationship of foreign aid and the government expenditures and tries to look the case of fungibility by dis aggregating non developmental sectors expenditures and developmental sectors in aggregate.The empirical results indicate that the flow of foreign aid does influence government spending patterns.Capital expenditure is positively and significantly affected by foreign Aid and also Foreign Aid finances Non- developmental Expenditures.

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