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Examining the effect of Foreign aid on Development.

Examining the effect of Foreign aid on Development. Joy Ohagwu jo5117a@american.edu American University School of International Service. Research Question & Research hypothesis. Research Questions:

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Examining the effect of Foreign aid on Development.

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  1. Examining the effect of Foreign aid on Development. Joy Ohagwu jo5117a@american.edu American University School of International Service

  2. Research Question & Research hypothesis • Research Questions: What is the impact of foreign aid on human development? Does foreign aid create dependency and inhibit indigenous economic development?. • Research hypothesis: Extensive provision of foreign aid slows indigenous economic development and creates some form of dependency.

  3. Literature Review • Ali & Abdiwelli, 2007,FOREIGN AID AND FREE TRADE AND THEIR EFFECT ON INCOME: The Journal of developing areas ,October 1st 2007. • Findings : The findings of this paper strongly suggest that foreignaid and trade are strong determinants of GDP per worker, albeit in opposite directions. The regression results are robust to the inclusion of a multitude of exogenous variables that are considered to be determinants of GDP per worker. • Osborne Evan, Rethinking Foreign Aid: The Cato Journal, Sept. 22nd 2002. • Findings: Critics of foreign aid do not ask about the role of aid in reducing poverty. Foreign aid is a response to crisis not an instrument for development.

  4. Data, Null & Alternative Hypothesis • Interval Ratio Data • Source of the data : United Nations Development Program ( UNDP )2004,World Bank Report 2004. • Reliability of Data : The data used for this study have varied in degrees of reliability but is mostly reliable. These data are drawn from studies done in only 2004 . • Ho: There is no relationship between Foreign Aid and Human Development . • Ha: There is a relationship between Foreign Aid and Human Development.

  5. Variables • Dependent Variable : Human Development Index • Independent Variables : • GDP in PPP (Constant & Int’l) • Int’l Transfers (as & of GDP) • Economic globalization ( Economic Flows + Economic Restrictions ) • Percent of Internet Users • Africa Dummy Variable ( Nominal Variable )

  6. Bivariate Correlations & Descriptive Statistics Table Table 1.

  7. Scatter plot

  8. REGRESSION TABLES

  9. Regression Analysis/ Contingency INTERPRETATION OF THE REGRESSION AND SCATTERPLOT i )There is a positive significant relationship between GDP in PPP and HDI . One unit change in GDP in PPP will lead to (0.257) change in HDI. ii ) There is a negative significant relationship between Int’l Transfers ( Foreign Aid ) as % of GDP and HDI. One unit change in Int’l Transfers will lead to ( -0.078) change in HDI. iii ) There is a positive significant relationship between Economic Globalization( economic flows & economic restrictions ) and HDI . One unit change in Economic Globalization will lead to ( 0.001) change in HDI. iv) There is a positive significant relationship between Percentage of Internet Users and HDI . One unit change in Percentage of Internet Users will lead to a (0.52 ) change in HDI. v) The Africa Dummy variable prevents skewing of the results. GDP in PPP ( independent variable 1) is logged because of prior curvilinear graph produced. (Log GDP in PPP) is used instead for analysis and tables.

  10. Findings & Policy Implications of the research • Findings: • The result shows a weak but significant relationship indicated by my regression model. The adjusted R squared shows a very strong relationship between all the independent variables and the dependent variable but a weak individual relationship for Foreign aid. • The efforts and direction of foreign aid needs to be refocused to disaster areas only in order to improve the PPP of recipient nations . However, there is no direct causal relationship between foreign aid and low human development.

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