Can One Promote a Delegation of the Bilateral Aid to Multilateral Donors to Improve Foreign Aid Effect on Economic Growth in ECOWAS (Note 1) Countries?

Abstract

This article analyzes the relationship between external aid and economic growth in the ECOWAS region, with a focus on bilateral and multilateral aid effects. The key idea behind this analysis is an argument of Svensson (2000) that multilateral aid is more effective than bilateral aid because of the high degree of altruism of bilateral donors. He therefore suggested a delegation of bilateral aid to multilateral institutions. To appreciate his suggestion, this analysis used panel data from the 16 ECOWAS countries from the period 1984 to 2014. The results of the estimates, based on the dynamic least squares estimator (DOLS), show a negative effect of foreign aid on economic growth. This negative effect on economic growth persists when the components of aid are introduced into the model. In addition, results highlight that governance is a channel through which foreign aid affect positively economic growth. In these conditions, bilateral aid is more effective on economic growth than multilateral aid. These results about foreign aid received by ECOWAS countries invalidates Svensson’s (2000) theory. Therefore, a delegation of bilateral aid to multilateral institutions is not relevant because bilateral aid contributes more to economic growth if governance is taken into account.