FOREIGN AID AND ECONOMIC DEVELOPMENT IN SUB SAHARAN AFRICA: THE ROLE OF INSTITUTIONS (1996-2010)

FOREIGN AID AND ECONOMIC DEVELOPMENT IN SUB SAHARAN AFRICA: THE ROLE OF INSTITUTIONS (1996-2010) ( Economics Education Project Topics)

ABSTRACT

This study examined the relationship between foreign aid and economic development in sub Saharan Africa. The study seeks to examine the role of institutions in aid effectiveness and economic development in Sub Saharan Africa. The study adopted a theoretical framework similar to the Endogenous or New Growth model, as well as; the system generalized method of moments (GMM) technique of estimation was adopted in order to overcome the challenge of endogeneity perceived in the institutions variables and Aid growth argument. It was observed that foreign aid significantly influence Real GDP Per Capita (the proxy for economic development) in Sub Saharan Africa. Also, variables like gross fixed capital formation, rule of law, control of corruption (which are proxy for institutions) and Human capital had a significant effect on Economic development in sub Saharan Africa while labour had no significant effect on economic development in Sub Saharan Africa.

CHAPTER ONE

INTRODUCTION

1.1  Background To Study

Most African countries are characterized by massive poverty, high death rate, slow GDP growth, high population growth rate and increased income inequality, increased absolute poverty rate, low educational standards, low human development index to mention a few. According to development statistics, in Africa, about 1.2 billion people live on less than $1 a day and another 2.8 billion people live on less than $2 a day. This is also a similar case in health as the mortality rate has sky rocketed over the years as declared according to the UNICEF who stated that more than 10 million children die each year from preventable disease such as malaria, polio to mention a few (Emmanuel, 2012; Ogundipe and Ogundipe, 2013). Another scenario in developing countries is that the child mortality rate remains more than 10 times higher than those found in the rich countries and this is as a result of diseases that can be treated easily like dehydration (Todaro and Smith, 2011).

In examining human capital development via education, Africa is in deteriorating conditions. The average child in sub Saharan Africa can expect to spend less than 5 years in school, without even considering absenteeism of teachers and lack of resources like books. This is in deep contrast with a child in Europe who is sure to get at least 12 years of schooling. Also, the education gender gap is especially great in developing countries in Africa, where female literacy rates can be less than half of men’s in countries such as Nigeria, Mali, Guinea, Benin to mention a few. Sub Saharan Africa and even Africa as a whole have been seen to exhibit relatively low levels of income despite the fact that they are heavily populated. Sub Saharan Africa received just two percent of total shares of Global income in the year 2008. According to Todaro (2011), In the case of income inequality and absolute poverty which is a major topic in development economics, the incidence of extreme poverty is very high as released by the World Bank’s estimate that the share of the population living on less than $1.25 per day is 41.1% in sub Saharan Africa. Population growth rate of developing countries especially in Africa continue to grow in leaps and bounds. From 1990 to 2008, population in the low income countries grew at an average of 2.2% per year. The main issue is that there has been a case of heavy debt servicing and it has been observed that most funds in Africa go into servicing debts. (Todaro and Smith, 2011)

FOREIGN AID AND ECONOMIC DEVELOPMENT IN SUB SAHARAN AFRICA: THE ROLE OF INSTITUTIONS (1996-2010) ( Economics Education Project Topics)