The Long‐Run Impact of Foreign Aid in 36 African Countries: Insights from Multivariate Time Series Analysis*

Abstract

Abstract We comprehensively analyse the long‐run effect of foreign aid (ODA) on key macroeconomic variables in 36 sub‐Saharan African countries from the mid‐1960s to 2007, using a well‐specified cointegrated VAR model as statistical benchmark. Results provide broad support for a positive long‐run impact of ODA flows on the macroeconomy. In contrast, we find little evidence supporting the thesis that aid has been harmful. From a methodological point of view we highlight the importance of transparency in reporting results, especially when the hypothesis being tested differs from theoretical expectations, and we identify reasons for econometrically inadequate results in the literature.