Aid Volatility and Structural Economic Transformation in sub-Saharan Africa: Does Finance Matter?: Economic Research Southern Africa (ERSA) Working Paper 655

Emmanuel Kumi; Muazu Ibrahim; Thomas Yeboah

Aid Volatility and Structural Economic Transformation in sub-Saharan Africa: Does Finance Matter? Economic Research Southern Africa (ERSA) Working Paper 655

Emmanuel Kumi
, Muazu Ibrahim
, Thomas Yeboah

University of the Witwatersrand
University of Cape Coast

Research output: Contribution to conference › Paper › peer-review

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Abstract

This paper departs from the traditional aid—economic growth studies through its examination of the impact of aid and its volatility on sectoral growth by relying on panel dataset of 37 sub-Saharan African (SSA) countries for the period 1980—2014. Findings from our system generalised
methods of moments (GMM) show that, while foreign aid significantly drives economic transformation, aid volatility deteriorates sectoral value additions with huge impact on the non—tradable sector and a no apparent effect on the agricultural sector. However, the deleterious effect of aid volatility on structural economic transformation in SSA is weakened by
a well—developed financial system with a large dampening impact on the tradable sector. Our evidence therefore provides unequivocal support for
the notion that development of domestic financial markets enhances aid effectiveness.

Original language	English
Pages	1-26
Number of pages	27
Publication status	Published - 12 Jan 2017

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 8 Decent Work and Economic Growth
SDG 10 Reduced Inequalities

Keywords

Aid, Sectoral growth, sub-Saharan Africa, Volatility

Access to Document

Working paper 655 (1)Final published version, 868 KBLicence: Unspecified

Cite this

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AB - This paper departs from the traditional aid—economic growth studies through its examination of the impact of aid and its volatility on sectoral growth by relying on panel dataset of 37 sub-Saharan African (SSA) countries for the period 1980—2014. Findings from our system generalised methods of moments (GMM) show that, while foreign aid significantly drives economic transformation, aid volatility deteriorates sectoral value additions with huge impact on the non—tradable sector and a no apparent effect on the agricultural sector. However, the deleterious effect of aid volatility on structural economic transformation in SSA is weakened by a well—developed financial system with a large dampening impact on the tradable sector. Our evidence therefore provides unequivocal support for the notion that development of domestic financial markets enhances aid effectiveness.

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