The Economics of Foreign Aid: Time Series Evidence from a Less Developed Country (LDC)

Abstract

Empirical literature on aid-growth nexus mostly centered within cross-country framework exploiting typical ordinary least squares (OLS) estimation. As a result, scarcity prevails studies empirically examine country-specific causes of aid-growth nexus exercising distinct methods. This study aims to fill this gap, taking the case of Bangladesh- a leading aid recipient country. Empirical findings based on vector error correction modeling and Granger causality test unearth absence of long-run and short-run causality of aid on GDP growth. Therefore, this study argues that although aid remains a major component of LDCs macroeconomic framework; however, it is yet to emerge as a significant player in their economic growth.