Does foreign aid accelerate economic growth in Yemen?
Keywords:
Yemen, foreign aid, economic growth, cointegration, error correction model, stability testsAbstract
Foreign aid's primary role has been accelerating the wheel of economic growth in developing countries, not to mention its fundamental role in facing many disasters and the repercussions of the wars that these countries exposed to. The primary objective of this study is to explore the impact of foreign aid on economic development in the Republic of Yemen. A standard model developed that includes time series for GDP as a dependent variable and both foreign aids, foreign direct investment, exports of goods and services, and oil rent as independent variables. Time-series properties diagnosed and error correction model estimated. Overall results indicate that all independent variables, including foreign aid, have had a long-term impact on economic growth. However, the effect of foreign aid has had a negative effect on economic growth for reasons that may be related to the limited efficiency of the uses of that aid.
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Appendices
Appendix (A): Results from estimating System of Equations
Model 1: D(LNY) = C(1)*( LNY(-1) - 4.08523738655*LNAID(-1) + 0.372435906664*LNFDI(-1) - 3.66811080943*LNX(-1) - 3.15217061746*LNOILR(-1) + 31.269427393 ) + C(2)*D(LNY(-1)) + C(3)*D(LNY(-2)) + C(4)*D(LNAID(-1)) + C(5)*D(LNAID(-2)) + C(6)*D(LNFDI(-1)) + C(7)*D(LNFDI(-2)) + C(8)*D(LNX(-1)) + C(9)*D(LNX(-2)) + C(10)*D(LNOILR(-1)) + C(11)*D(LNOILR(-2)) + C(12)
Model 2:
D(LNAID) = C(13)*( LNY(-1) - 4.08523738655*LNAID(-1) + 0.372435906664*LNFDI(-1) - 3.66811080943*LNX(-1) - 3.15217061746*LNOILR(-1) + 31.269427393 ) + C(14)*D(LNY(-1)) + C(15)*D(LNY(-2)) + C(16)*D(LNAID(-1)) + C(17)*D(LNAID(-2)) + C(18)*D(LNFDI(-1)) + C(19)*D(LNFDI(-2)) + C(20)*D(LNX(-1)) + C(21)*D(LNX(-2)) + C(22)*D(LNOILR(-1)) + C(23)*D(LNOILR(-2)) + C(24)
Model 3:
D(LNFDI) = C(25)*( LNY(-1) - 4.08523738655*LNAID(-1) + 0.372435906664*LNFDI(-1) - 3.66811080943*LNX(-1) - 3.15217061746*LNOILR(-1) + 31.269427393 ) + C(26)*D(LNY(-1)) + C(27)*D(LNY(-2)) + C(28)*D(LNAID(-1)) + C(29)*D(LNAID(-2)) + C(30)*D(LNFDI(-1)) + C(31)*D(LNFDI(-2)) + C(32)*D(LNX(-1)) + C(33)*D(LNX(-2)) + C(34)*D(LNOILR(-1)) + C(35)*D(LNOILR(-2)) + C(36)
Model 4:
D(LNX) = C(37)*( LNY(-1) - 4.08523738655*LNAID(-1) + 0.372435906664*LNFDI(-1) - 3.66811080943*LNX(-1) - 3.15217061746*LNOILR(-1) + 31.269427393 ) + C(38)*D(LNY(-1)) + C(39)*D(LNY(-2)) + C(40)*D(LNAID(-1)) + C(41)*D(LNAID(-2)) + C(42)*D(LNFDI(-1)) + C(43)*D(LNFDI(-2)) + C(44)*D(LNX(-1)) + C(45)*D(LNX(-2)) + C(46)*D(LNOILR(-1)) + C(47)*D(LNOILR(-2)) + C(48)
Model 5:
D(LNOILR) = C(49)*( LNY(-1) - 4.08523738655*LNAID(-1) + 0.372435906664*LNFDI(-1) - 3.66811080943*LNX(-1) - 3.15217061746*LNOILR(-1) + 31.269427393 ) + C(50)*D(LNY(-1)) + C(51)*D(LNY(-2)) + C(52)*D(LNAID(-1)) + C(53)*D(LNAID(-2)) + C(54)*D(LNFDI(-1)) + C(55)*D(LNFDI(-2)) + C(56)*D(LNX(-1)) + C(57)*D(LNX(-2)) + C(58)*D(LNOILR(-1)) + C(59)*D(LNOILR(-2)) + C(60)
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