The short-run and long-run impacts of foreign aid and remittances on economic growth: Evidence from African countries

Abstract

This study examines the short-run and long-run impacts of foreign aid and remittances on economic growth in a panel of 31 African countries from 1980 to 2019 utilizing the ARDL Pool Mean Group (PMG) estimation technique. The PMG is utilized based on the outcome of the Hausman test which justifies it appropriateness. There is long-run association among the regressors and the regressand in the model. Our results indicate that, in the short-run, remittance and foreign aid respectively have a negative impact on economic growth but that impact is statistically insignificant. In the long-run, however, remittances have a positive and significant impact on economic growth while foreign aid has a positive but insignificant effect on economic growth on the continent. These results have substantial policy implications. African governments should adopt effective policies to maximize the usefulness and effectiveness of foreign capital, such as foreign aid and remittances, in boosting economic growth.

KEYWORDS:

• Foreign aid
• remittances
• economic growth
• PMG
• African countries

JEL Classifications:

• F
• F3
• F35
• O
• O1
• O11
• O4
• O47
• O5
• O55

Disclosure statement

No potential conflict of interest was reported by the author(s).

Correction Statement

This article has been corrected with minor changes. These changes do not impact the academic content of the article.

Additional information

Funding

This research was funded by the General Research Fund of The Academy of China Open Economy Studies at the University of International Business and Economics (Grant No. 2022GK10).