economics
International Journal of Economics and Financial Issues
Vol. 3, No. 3, 2013, pp.743-751
ISSN: 2146-4138 www.econjournals.com Foreign Aid and Economic Growth in Egypt: A Cointegration Analysis
Hoda Abd El Hamid Ali
Department of Economics and Foreign Trade,
Faculty of Commerce and Business Administration,
Helwan University, Cairo, Egypt. Tel: 00201003452575.
Email: hoda_hawary@yahoo.com
ABSTRACT: There is a current and growing debate on the effectiveness of foreign aid, especially in
Egypt, as the country is going through a critical period in its transition to democracy. The obvious question is to what extent foreign aid to Egypt will be effective in promoting economic growth. By using Johansen Cointegration test and Vector Error Correction Model (VECM), the paper finds a negative and significant impact of foreign aid on economic growth in the long and short run. It is highly suggested that Egypt must rely upon the indigenous resources to promote development rather depending on external factors.
Keywords: Economic Growth; Foreign Aid; Johansen Cointegration Test; Vector Error Correction
Model; Egypt
JEL Classifications: F3; F35; 01
1. Introduction
In the area of development economics, economists and policy analysts have always considered the impact of foreign aid, in addition to domestic resources, on economic growth in developing economies. Several recent studies, typified by the work of Burnside and Dollar (2000) ,and
Collier and Dollar (2002), argue that aid assists growth but only in a good policy environments, others suggest that aid is found to be effective but with diminishing returns (see for example, Hansen and
Trap, 2000, 2001; Dalgaard and Hansen, 2001; Lensink and White, 2001; Hudson and Mosley, 2001;
Clemens et al., 2004; Dalgaard et al., 2004) ( See Ang, 2010:197).
One recent attempt to quantify the effect of foreign aid on economic growth in Egypt is found in Bassam (2008),the author examines the long-run relationship
Vol. 3, No. 3, 2013, pp.743-751
ISSN: 2146-4138 www.econjournals.com Foreign Aid and Economic Growth in Egypt: A Cointegration Analysis
Hoda Abd El Hamid Ali
Department of Economics and Foreign Trade,
Faculty of Commerce and Business Administration,
Helwan University, Cairo, Egypt. Tel: 00201003452575.
Email: hoda_hawary@yahoo.com
ABSTRACT: There is a current and growing debate on the effectiveness of foreign aid, especially in
Egypt, as the country is going through a critical period in its transition to democracy. The obvious question is to what extent foreign aid to Egypt will be effective in promoting economic growth. By using Johansen Cointegration test and Vector Error Correction Model (VECM), the paper finds a negative and significant impact of foreign aid on economic growth in the long and short run. It is highly suggested that Egypt must rely upon the indigenous resources to promote development rather depending on external factors.
Keywords: Economic Growth; Foreign Aid; Johansen Cointegration Test; Vector Error Correction
Model; Egypt
JEL Classifications: F3; F35; 01
1. Introduction
In the area of development economics, economists and policy analysts have always considered the impact of foreign aid, in addition to domestic resources, on economic growth in developing economies. Several recent studies, typified by the work of Burnside and Dollar (2000) ,and
Collier and Dollar (2002), argue that aid assists growth but only in a good policy environments, others suggest that aid is found to be effective but with diminishing returns (see for example, Hansen and
Trap, 2000, 2001; Dalgaard and Hansen, 2001; Lensink and White, 2001; Hudson and Mosley, 2001;
Clemens et al., 2004; Dalgaard et al., 2004) ( See Ang, 2010:197).
One recent attempt to quantify the effect of foreign aid on economic growth in Egypt is found in Bassam (2008),the author examines the long-run relationship