The Impact of Foreign Aid on Economic Growth of Ethiopia

Abstract

The study has examined the impact of foreign aid on economic growth in Ethiopia over the period 1974 to 2013 using multivariate co integration analysis. The empirical result from the growth model shows that aid has a significant positive impact on growth in the long run. The aid-policy interaction term also has a significant positive effect on growth implying that the effectiveness of aid would have been higher if it was supported by a sound macroeconomic policy environment. This study indicated also that the country has no problem of capacity constraint as to the flow of foreign aid.