The study has examined the impact of foreign aid on investment and economic growth in
Ethiopia over the period 1970 to 2009 using multivariate cointegration analysis. The empirical
result from the investment equation shows that aid has a significant positive impact on
investment in the long run. On the other hand, volatility of aid by creating uncertainty in the
flow of aid has a negative influence on domestic capital formation activity. Foreign aid is
effective in enhancing growth. However, the aid-policy interaction term has produced a
significant negative effect on growth implying that bad policies can constrain aid
effectiveness. The growth equation further revealed that rainfall variability has a significant
negative impact on economic growth as the economy. This study indicated also that the
country has no problem of capacity constraint as to the flow of foreign aid…..Click here to read FOREIGN AID AND ECONOMIC GROWTH IN ETHIOPIA1


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