Analysis Of The Impact Of Foreign Aid On The West African Economies

Africa has received substantial development aid relative to many other developing world(s) and its aid landscape is complex. This study examines the impact of foreign aid(official development aid) on economic growth of West Africa and which comprised of fifteen(15) independent nations; the data covers the period of 1980-2014. The main hypothesis tested was “foreign aid has a significant effect on the economic growth of West Africa”. A whole panel of fifteen West African countries was tested for the presence of unit roots. We first run a general regression for all the variables to see their impact on the dependent variable of Real Gross Domestic Product(RGDP). We then examine the unit root of all the variables using both the LLC(Levin, Lin & Chu) and IPS(Im, Pesaran and Shin W-stat) for each variable given above in unit root test. From the unit root test, the examination suggests that the variables has unit root at levels except investment(INV). Generally, for the whole West African states, foreign aid was found to have significant impact on growth for nine(9) countries(Benin, Burkina Faso, Gambia, Ghana, Guinea Bissau, Liberia, Senegal, Sierra Leone and Togo) due to improvement in their institutions(both private and public) in terms of service delivery, in reducing corruption, the magnitude of aid received, transparency and accountability and the proper management of aid monies, while it was found not to have significant impact on six(6) West African countries(Cote D?Ivoire, Guinea, Mali, Mauritania, Niger and Nigeria) as a result of corruption, poor institutional building, mismanagement of aid funds, poor transparency and accountability and civil conflict. Import, export and investment are found positively and significantly impacting on economic growth. These can be expected for poor countries in West Africa which are highly dependent on import for both consumption and capital investment; that is an increase in the value of their respective domestic country(s) currencies would bring about a decrease in the cost of imported goods for their raw materials. A policy implication of the study is that member countries of the West African countries should seek foreign aid to some extents as it would greatly accelerate their economic growth.