Foreign Aid Complementarities and Inclusive Human Development in Africa

Abstract

This study complements existing literature by assessing how various types of foreign aid complement each other in boosting inclusive human development in Africa. (a) When ‘aid to social infrastructure’ is moderated with other aid types, ‘action on debts’ is substitutive whereas ‘aid to the production sector’, ‘aid for program assistance’ and humanitarian assistance are complementary. (b) ‘Aid to the production sector’ (‘action on debt’) is complementary (substitutive) to ‘aid for economic infrastructure’. (c) Whereas ‘action on debt’ is a substitute to ‘aid to the production sector’, ‘aid for social infrastructure’ and ‘aid for economic infrastructure’ are complementary. (d) ‘Action on debt’ is a substitute for ‘aid to the multi-sector’. (e) While ‘aid for social infrastructure’ and ‘action on debt’ are substitutive to ‘aid for program assistance’; humanitarian assistance is complementary. (f) The following are substitutes to ‘action on debt’: ‘aid for economic infrastructure’, ‘aid to the production sector’, ‘aid to the multi-sector’ and ‘program assistance’. (g) ‘Aid for social infrastructure’ and ‘program assistance’ are complementary to humanitarian assistance. The findings reveal various patterns that inform policy makers on the relevance of sequencing aid types to enhance inclusive development. Future research should focus on country-specific studies.

Keywords:

• Foreign aid
• inclusive development
• Africa

Notes

1 Inclusive human development in the study is the inequality-adjusted human development index, which is a combination of a country’s average achievements in terms of income, education and health. These achievements are adjusted for inequality so that human development also captures how the three sets of achievements are distributed among the population of the country. Accordingly, the inequality-adjusted human development index (IHDI) is the human development index (HDI) that is adjusted for inequality.

2 We invite the interested reader to consult Michel (2016) for a full list of SDGs. For more information on refer to http://www.cipe.org/publications/detail/beyond-aid-integration-sustainable-development-coherent-international-agenda.

3 ‘First, the null hypothesis of the second-order Arellano and Bond autocorrelation test (AR(2)) in difference for the absence of autocorrelation in the residuals should not be rejected. Second the Sargan and Hansen overidentification restrictions (OIR) tests should not be significant because their null hypotheses are the positions that instruments are valid or not correlated with the error terms. In essence, while the Sargan OIR test is not robust but not weakened by instruments, the Hansen OIR is robust but weakened by instruments. In order to restrict identification or limit the proliferation of instruments, we have ensured that instruments are lower than the number of cross-sections in most specifications. Third, the Difference in Hansen Test (DHT) for exogeneity of instruments is also employed to assess the validity of results from the Hansen OIR test. Fourth, a Fischer test for the joint validity of estimated coefficients is also provided’ (Asongu & De Moor, 2017, p. 200).