Impact of Foreign Aid on Poverty in the Middle East and North African (MENA) Region. A Panel Data Analysis Approach
Keywords:
Foreign Aid; Human Capital Development; Poverty; Panel Data; MENA RegionAbstract
This study’s two main objectives are as follows: Firstly, to investigate the impact of foreign aid on poverty reduction in the Middle East and North African (MENA) region. Secondly, to determine whether human capital development is a channel through which foreign aid influences poverty reduction in the MENA region. Put differently, to explore the impact of the complementarity between foreign aid and human capital development on poverty reduction in the MENA region. The study used econometric estimation approaches such as the dynamic generalised methods of moments (GMM), fixed effects, pooled ordinary least squares (OLS) and random effects with panel data spanning from 2007 to 2018. Though some minor contradictions are evident across the four econometric techniques used, the results can generally be summarized as follows: Foreign aid contributed towards poverty reduction in the MENA region. The study also noted that human capital development enhanced foreign aid’s impact on poverty reduction in the MENA region. Authorities in the MENA region should therefore implement policies aimed at attracting more foreign aid at the same time strengthening their human capital development strategies and policies in order to alleviate poverty. Further research exploring the minimum threshold levels of foreign aid enough to significantly reduce poverty in the MENA region is encouraged.
References
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35. Risikat, D. (2010). Income, schooling and ability: Evidence from a new sample of identical twins. Quarterly Journal of Economics, 113 (1), 113-121.
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37. Seedee, R (2018). The Impact of Foreign Aid on Extreme Poverty: A Case Study of Liberia’s Development Complexities (1980-2018). Unpublished Masters Thesis, East Tennessee State University.
38. Shina, A.A. (2018). Foreign Aid and Poverty Level: Does Public Investment Matter in Sub-Saharan African Countries? Global Journal of Management and Business Research: B Economics and Commerce, 18 (1), 1-10
39. Shleifer, A. (2009). Peter Bauer and the failure of foreign aid. Cato Journal, 29(3), 379–390.
40. Solow, R., (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70 (1), 65-94.
41. Steinert, J.I. Zenker, J. Filipiak, U. Movsisyan, A. Cluver, L.D. and Shenderovich, Y. (2017). Do saving promotion interventions help alleviate poverty in Sub-Saharan Africa? A systemic review and meta-analysis, Courant Research Centre Discussion Paper Number 226.
42. Ugwuanyi, Boniface, U. Ezeakau, Chijindi, H. and Ibe, I.G. (2017). The impact of official aid on poverty reduction: Empirical evidence from Nigeria (1981-2014) using the ARDL and Bounds Test approach, European Journal of Sustainable Development, 6 (2), 111-120.
43. Usuka, K. (2019). An analysis of the determinants of poverty in India and South Africa, Global Majority E-Journal, 10 (2), 100-115.
44. Yontcheva, B. and Masud, N. (2005). Does foreign aid reduce poverty? Empirical evidence from Non-governmental and bilateral aid. International Monetary Fund Working Paper Series Number 05/100. ISSN: 9781451861198/1018-5941
45. Zafar, S. Zafar, S.Z. Rana, A.A. Aslam, E. Idrees, Q. Iqbal, M. Afzal, W. and Islam, F. (2017). Contribution of foreign aid in the reduction of poverty: A case study of Pakistan (1986-2015), International Journal of Scientific and Engineering Research, 8 (1), 1377-1386.
2. Alfaro, L. and Johnson, M.S. (2012). Foreign direct investment and growth, The Evidence and Impact of Financial Globalization, Academic Press, Elsevier, 299-309.
3. Almeida, L.C.R.C. (2018). The effectiveness of foreign aid on poverty reduction: The role of the political regime. Unpublished Masters of Economics, Universidade Do Porto.
4. Amanda, A.A. (2019). The role of foreign aid in poverty alleviation and economic development in Malawi. Unpublished Masters in Development Studies, Nelson Mandela University.
5. Anyanwu, J.C. and Erhijakpor, A.E.O. (2010). Do international remittances affect poverty in Africa?, African Development Review, 22(1), 51-91.
6. Arshad, Z. Zaid, M. and Latif, A. (2014). Relative effectiveness of foreign debt on economic growth in Pakistan, Interdisciplinary Journal of Contemporary Research in Business, 6 (1), 51-67.
7. Aye, G.C. and Edoja, P.E. (2017), Effect of economic growth on C02 emission in developing countries: Evidence from a dynamic panel threshold model, “Cogent Economics and Finance”, 5 (1), 1-22.
8. Azher, B.A. (1995). Rural savings: Their magnitude, determinants and mobilization, Pakistan Development Review, 34(4), 779-786.
9. Balde, Y. (2011). The impact of remittances and foreign aid on savings or investment in Sub Saharan Africa, African Development Review, 23 (2), 247–262.
10. Bornschier, V. and Chase-Dunn, C. (1985). Transnational corporations and underdevelopment. New York: Praeger.
11. Bourguignon, F. and Platteau, J. (2017). Does aid availability affect effectiveness in reducing poverty? A review article, World Development, 90, 6-16.
12. Boye, R.A. (2019). Impact of foreign aid on poverty reduction in Ghana, Unpublished Masters Thesis, University of Ghana.
13. Calderon, M.C. Chong, A. and Gradstein, M. (2006). Foreign aid, income inequality and poverty, Inter-American Development Bank Research Department Working Paper Number 547.
14. Cattaneo, C. (2005). International migration and poverty: A cross country analysis, Centro Studi Luca d’Agliano, Torino. www.dagliano.unimi.it/media/Cattaneo_Cristina.
15. Chaudhry, I.S. and Rahman, S. (2009). The impact of gender inequality in education on rural poverty in Pakistan: An empirical analysis, European Journal of Economics, Finance and Administrative Sciences, 15, 174-188.
16. Clunies-Ross, A. Forsyth, D. and Huq, M. (2009). Development economics (1st ed.), Berkshire: McGrawHill Higher Education.
17. Gylfason, T. and Zoega, G. (2006). Natural resources and economic growth: the role of investment, World Economy, 29(8), 1091-1115.
18. Ijaiya, G.T and Ijaiya, M.A. (2004). Foreign aid and poverty reduction in Sub-Saharan Africa: A cross country investigation, SAJEMS, 7 (3), 543-552.
19. Im, K.S. Pesaran, M.H. and Shin, Y. (2003). Testing unit roots in heterogeneous panels, Journal of Econometrics, 115 (1), 53-74.
20. Jahan, S. and McCleery, R. (2005). Making infrastructure work for the poor: Synthesis report of four country studies - Bangladesh, Senegal, Thailand and Zambia. New York: UNDP.
21. Kao, C. (1999). Spurious regression and residual-based tests for co-integration in panel data, Journal of Econometrics, 90 (1999), 247-259.
22. Kargbo, P.M. (2012). Impact of foreign aid on economic growth in Sierra Leone, United Nations University, World Institute for Development Economic Research Working Paper Number 2012/07.
23. Knack, S. (2001). Aid dependence and the quality of governance: Cross country empirical tests, Southern Economic Journal, 68 (2), 310–329.
24. Lewis, A. W. (1954). Economic development with unlimited supplies of labour. The Manchester School, 22(2), 139-191.
25. Levin, A. Lin, C.F. and Chu, C.S.J. (2002), Unit root tests in panel data: Asymptotic and finite-sample properties, Journal of Econometrics”, 108, (1), 1-24.
26. Magnon, K.A. (2012). Foreign aid, inequality and poverty: Is the effect in Sub-Saharan African countries different? Unpublished Masters Thesis, Southern Illinois University Carbondale.
27. Mahembe, E. and Odhiambo, N. (2017). On the link between foreign aid and poverty reduction in developing countries, Revista Galega de Economia, 26 (2), 113-132.
28. Mahembe, E. and Odhiambo, N. (2019). Foreign aid and poverty reduction: A review of international literature, Cogent Social Sciences, 51 (1), 1-15.
29. Mahembe, E. (2019). Development aid and its impact on poverty reduction in developing countries: A dynamic panel data approach. Unpublished Doctoral Thesis in Economics, University of South Africa.
30. Mosley, P. Hudson, J. and Horrell, S. (1987). Aid, the public sector and the market in less developed countries. The Economic Journal, 97 (September 1987), 616-641.
31. Okoronkwo, O.O.V. Nnenna, P and Eyitayo, A. (2016). The impact of foreign aid on poverty reduction/alleviation programmes in Lagos State, Nigeria, Journal of Research and Development, 2 (12), 40-49.
32. Page, J. and Shimeles, A. (2015). Aid, employment and poverty reduction in Africa, African Development Review, 27 (S1), 17-30.
33. Pradhan, B.K. and Mahesh, M. (2014). Impact of trade openness on poverty: A panel data analysis of a set of developing countries. Economic Bulletin, 34(4), 2208-2219.
34. Rewilak, J. (2017). The role of financial development in poverty reduction, Review of Development Finance, 7 (2), 169-176.
35. Risikat, D. (2010). Income, schooling and ability: Evidence from a new sample of identical twins. Quarterly Journal of Economics, 113 (1), 113-121.
36. Romer, P. (1986). Increasing returns and long run economic growth, Journal of Political Economy, 94(5), 1002-1037
37. Seedee, R (2018). The Impact of Foreign Aid on Extreme Poverty: A Case Study of Liberia’s Development Complexities (1980-2018). Unpublished Masters Thesis, East Tennessee State University.
38. Shina, A.A. (2018). Foreign Aid and Poverty Level: Does Public Investment Matter in Sub-Saharan African Countries? Global Journal of Management and Business Research: B Economics and Commerce, 18 (1), 1-10
39. Shleifer, A. (2009). Peter Bauer and the failure of foreign aid. Cato Journal, 29(3), 379–390.
40. Solow, R., (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70 (1), 65-94.
41. Steinert, J.I. Zenker, J. Filipiak, U. Movsisyan, A. Cluver, L.D. and Shenderovich, Y. (2017). Do saving promotion interventions help alleviate poverty in Sub-Saharan Africa? A systemic review and meta-analysis, Courant Research Centre Discussion Paper Number 226.
42. Ugwuanyi, Boniface, U. Ezeakau, Chijindi, H. and Ibe, I.G. (2017). The impact of official aid on poverty reduction: Empirical evidence from Nigeria (1981-2014) using the ARDL and Bounds Test approach, European Journal of Sustainable Development, 6 (2), 111-120.
43. Usuka, K. (2019). An analysis of the determinants of poverty in India and South Africa, Global Majority E-Journal, 10 (2), 100-115.
44. Yontcheva, B. and Masud, N. (2005). Does foreign aid reduce poverty? Empirical evidence from Non-governmental and bilateral aid. International Monetary Fund Working Paper Series Number 05/100. ISSN: 9781451861198/1018-5941
45. Zafar, S. Zafar, S.Z. Rana, A.A. Aslam, E. Idrees, Q. Iqbal, M. Afzal, W. and Islam, F. (2017). Contribution of foreign aid in the reduction of poverty: A case study of Pakistan (1986-2015), International Journal of Scientific and Engineering Research, 8 (1), 1377-1386.
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Published
2021-05-10
How to Cite
Tsaurai, K. (2021). Impact of Foreign Aid on Poverty in the Middle East and North African (MENA) Region. A Panel Data Analysis Approach: Array. Acta Universitatis Danubius. Œconomica, 17(3). Retrieved from https://dj.univ-danubius.ro/index.php/AUDOE/article/view/880
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