Foreign aid and economic growth: evidence from Cambodia

ABSTRACT

This paper attempts to examine the growth impact of foreign aid in Cambodia over the period 1980–2014, using the autoregressive distributive lag (ARDL) bounds testing approach. The study also incorporates investment and trade openness into the model. The empirical findings show that trade openness has positive effects on growth in both the short run and the long run; investment has positively contributed to growth in the long run while foreign aid has positive impact on growth only for the short run. On the contrary, in the long run, it has negative impact on investment and growth. This can be suggested that dependence on foreign aid for long periods of time does not positively contribute to investment and growth in Cambodia. In order to achieve sustainable growth and enhanced industrialization, policy-makers should move from aid dependence to promote investments through elevating domestic and foreign capital in the country.

KEYWORDS:

• ARDL model
• Cambodia
• causality
• economic growth
• foreign aid

JEL Classifications:

• C32
• F35
• F43

Acknowledgments

The author is grateful to the editor and the anonymous referees of this journal for useful comments. Finally, the author would also like to thank Life University, Cambodia, for providing the place for conducting this research. All the views and the remaining errors belong to the author.

Disclosure statement

No potential conflict of interest was reported by the author.