Poverty remains, despite efforts by the advanced economies to address it, a constant challenge in the world, particularly in Africa. The African continent has been riddled with poverty for decades. The factors that lead to and sustain poverty in African countries are varied and differ from country to country. However, historical factors, political instability, poor economic policies, a lack of education, disease, population growth, as well as climatic and environmental factors are key examples of some of these contributing factors. Today, Uganda is considered to be one of the poorer countries on the African continent, and for decades, despite large amounts of foreign aid inflow, there has been no significant improvement in relation to poverty reduction. The purpose of this study was to evaluate whether foreign aid contributed to economic growth in Africa, with Uganda serving as a case study. Using data from 1987 to 2011, the Autoregressive Distributed Lag was employed to test for the existence of the long-run Augmented Dickey-Fuller test for stationarity and the Ordinary Least Square regression analysis was used to test for the relationship between the variables. The results show that foreign aid has a significant negative effect on economic growth in the long run. The lesson for policymakers is that aid can improve economic growth in the long run, if and when facilitated by quality institutions. Other policy recommendations are included

Large quantities of foreign development assistance continue to flow to many developing countries. At the same time, most of the aid-receiving countries have stagnated and become even more aid-dependent. This grim reality provokes vigorous debate on the effectiveness of aid. Despite the voluminous research on aid effectiveness, clear evidence to support the view that development aid stimulates economic growth remains scant. This thesis intends to extend the existing literature on foreign aid and economic growth. First we re-examine results from cross-country studies to provide new insights on the lack of robustness of results from this approach. We further explore and deepen the observation that cross-country results are fragile, particularly when the number of countries in the sample changes. Secondly, we study the impact of district-level aid disbursement on the growth of average night-time light density in Malawi. We use two plausibly exogenous determinants of within-country aid allocation to isolate the causal effects of aid. The results show a robust and quantitatively significant effect of aid flows in stimulating growth of light density. We find a hump-shaped growth response over three years. Finally, the thesis presents a theoretical model that explores how aid affects economic growth and welfare in an economy with subsistence constraints. The main results from this analysis are; (i) productive aid has higher long run growth and welfare effects than pure aid (ii) the rate of convergence depends crucially on how close the initial conditions are to the subsistence level (iii) while growth effects are maximised when all the aid is allocated to productive aid, we find that optimal welfare is reached when some proportion of aid is also allocated to pure transfers.

In capital-scarce low income economies, the lack of attractiveness to private foreign investment implies that the only readily available source of external financing for economic development has to come from foreign aid which normally comes with an altruistic motive. However, despite long history of aid-giving to low income countries and especially Sub-Saharan Africa, evidence of effectiveness of such assistance has remained debatable, particularly with the dominance of cross-country studies in such enquiry. With yet no existing country study for Sierra Leone, a typical aid dependent country, this research investigates the relationship between donor intervention (in their aid disbursement) and the development outcomes of economic growth and poverty reduction in the country. In conducting such an enquiry, the study proposed three objectives. The first examines the relationship between aid and economic growth. The second objective investigates the relationship between aid and poverty reduction considering two variants of poverty reduction: improvement of pro-poor growth and aggregate human welfare. The final objective assesses the effect of domestic politics on aid’s effectiveness in improving human welfare. Arising from a pluralistic analytical framework involving a triangulation of econometric estimation approaches complemented with qualitative enquiry, the study finds that aid to Sierra Leone is significant in promoting economic growth in the country. In terms of the impact on poverty, the results show that foreign aid to Sierra Leone has significantly improved long-run pro-poor growth in the country, but this impact could not be confirmed in the short-run. With respect to the other strand of poverty, the study finds that though aid may have not improved human well-being in Africa, it is found to significantly improve human development in Sierra Leone, though the evidence could not support its reduction of infant mortality rate as a second indicator of human well-being. Finally, for the investigation of the link between aid, politics and human development in Sierra Leone, the study finds that though aid is significant in directly improving human development in the country, yet pro-democratic politics (as against autocratic regimes) can also be good a policy option for aid‘s impact on human development in the country. Accounting for disaggregation bias of foreign aid, the study finds that whilst grants seem to consistently improve economic growth, pro-poor growth and human welfare, the study could not find strong evidence to suggest that technical assistance and loans likewise improve economic development the country. The impact of food aid on pro-poor growth is found to be moderate in conformity with the study’s hypothesis. Concluding from the analysis, it is evident in the case of Sierra Leone that the supplemental theories largely hold that foreign aid is vital in the promotion of a country’s economic development. Hence, the intervention of donors in the economy of Sierra Leone has not seemed to be in vain, but has rather proved to be largely useful. It implies that Sierra Leone’s persistent poverty characterisation amidst notable donor presence and participation in the country’s economy has little to do with the fact that foreign aid has not been effective in promoting the country’s economic development, but it may however be that the magnitude of the effect may not have been that high to completely eradicate poverty. The study’s identification of the most effective types of aid as well the realisation of political stability and democracy for enhanced effectiveness of aid in the country could be crucial if the economic significance of foreign aid is to be improved in Sierra Leone.