Impact of Foreign aid on Economic Growth in Sierra Leone.

Author:Stewart, James

24 May 2012

Aid and economic growth: the case of Sierra Leone.

Phillip Michael Kargbo's UNU-WIDER working paper, 'Impact of Foreign Aid on Economic Growth in Sierra Leone: Empirical Analysis' examines the impact of foreign aid on growth in Sierra Leone using a variety of econometric approaches. The paper finds that in the period 1970-2007 aid has a significant contribution in promoting economic growth in the country. It also shows that the effect of aid on economic growth during the period of war is either weak or non-existent and that aid during the pre-war period was marginally more effective than aid during the post-war period. These latter results suggest that the impact of aid may change with time.

The Impact of Aid on Economic Growth in Sierra Leone

Sierra Leone is a country characterized by high levels of aid dependence and unimpressive economic performance, as well as by long term political instability and armed conflict. Development aid has historically been a high proportion of Sierra Leone's gross domestic product and surged after the civil conflict that took place between 1991 and 2002. Annual aid disbursed to Sierra Leone between 1970 and 2007 stands at an average of 14.2 percent of GDP, a figure much higher than the regional average of 3.7 percent for Africa as a whole. Despite this level of support Sierra Leone's economic performance has remained wanting in terms of both growth and poverty reduction.

In his UNU-WIDER working paper 'Impact of Foreign Aid on Economic Growth in Sierra Leone' Phillip Michael Kargbo uses a variety of econometric approaches to assess the effect aid had on economic growth in Sierra Leone in the period from 1970 to 2007. The paper presents three main findings.

  1. Aid had a significant positive effect on economic growth over the period as a whole.

  2. The effect of aid on growth during Sierra Leone's eleven year civil conflict, 1991-2002, is either weak or non-existent.

  3. Aid had a greater positive impact on growth prior to the conflict than it has had in the post-war period.

These findings are to a large extent consistent with a great portion of the macro level aid-growth literature. Indeed the UNU-WIDER paper 'Aid Effectiveness: Opening the Black Box' by Channing Arndt, Sam Jones and Finn Tarp finds that a similar positive link between aid and growth is present on a more general, cross-country, level. However some case studies, for example, of Bangladesh, Cameroon, Papua New Guinea and Pakistan, have...

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