Examining the interactive growth effect of development aid and institutional quality in Sub-Saharan Africa

Abstract

This study analyses the interconnectivity of growth, aid and institutions in Sub-Saharan Africa based on annual data for a panel of 39 nations from 1996-2017. The hypothesis that the growth impact of aid and institutions could be interactive was examined. The results indicate that aid has a direct positive and an indirect negative growth impact through its interaction with domestic institutions. The synergistic growth impact of aid and institutions is found to be substitutive rather than complementary. This substitutive effect is most pronounced in Western Africa, followed by Eastern Africa, then Southern Africa, and least pronounced in Central Africa.