Does foreign aid reduce poverty in Sub-Saharan Africa? A dynamic panel-data analysis

Abstract

The main objective of this study is to examine the effect of official development assistance (ODA) or foreign aid on poverty in Sub-Saharan Africa (SSA) region over the period 1981-2011. This study uses recent dynamic panel estimation techniques, including those methods which deal with endogeneity and simultaneity concerns. To test the robustness of the results, the study uses three different proxies for poverty and five proxies for foreign aid. The main finding of the study is that foreign aid does have statistically significant poverty reduction effect. The results are consistent across all the three poverty proxies. The disaggregating of aid by source and type could not offer conclusive results. On the other hand, the study found that income per capita have around three times higher poverty-reducing effect compared to foreign aid while inequality has a detrimental effect on the fight against poverty.