Economic Growth and Sub-Saharan Africa Economies: Does External Finance Play A Significant Role?

Abstract

On the question of whether external finance stimulates GDP growth, the profession offers inconclusive as well as frequent contradictory outcomes. While waiting for a robust consensus, this paper addressed directly the mechanisms through which external finance should influence economic growth. Investment was identify as the most significant transmission mechanism, and as well considers effects via funding regime consumption expenditure and import. By employing the residual generated repressors’, we accomplish a measure of the overall influence of external finance on economic growth, accounting for the influence through investment. Based on the pooled panel outcomes, a sample of twenty-five Sub-Saharan Africa economies were examine over the period of 1970-1997; the result indicates that there is a significant and positive effect of overseas assistance on economic growth, ceteris paribus. Based on average, each one percent point upsurge in the aid/GNP ratio contributes one-quarter of one percent point to the growth rate. Therefore, the poor economic growth in Africa should not be attributed to external finance ineffectiveness.

Keywords: Aid; External finance; Growth; Investment; Sub-Saharan Africa

JEL classification: F35, O40, O55