Revista de Economía y Negocios

What is the impact of foreign aid on economic growth? Time series analysis with new evidence from Tanzania

Abstract

Albiman MM

Even though Tanzania has received large inflows of foreign aid since the 1970s to support its economic activities, very little literature has investigated the impact of foreign aid on Tanzania’s economic growth. After revealing that despite large inflows of foreign aid in Tanzania, the economic growth rate is apparently low, poverty level and budget deficits still persist in the economy. Therefore, our study aims to further investigate the impact of foreign aid on economic growth using the dynamic ordinary least squares (DOLS) model. After using the endogenous growth model and time series data from 1976 to 2014, we found that foreign aid has a negative impact on economic growth. Moreover, in the short run we also found that foreign aid is not a Granger cause for economic growth. The results suggest that the government needs to reconsider the type of foreign aid it receives.