An empirical investigation of foreign aid effectiveness in reducing poverty in some selected SADC countries: 2005-2013

Abstract

Historically, aid flows from the developed to developing countries have been economically justified for reducing poverty either through directly targeting the poor or indirectly via economic growth. This present study investigates whether or not aid has produced the anticipated results in 12selected SADC countries using panel data analysis covering a period of nine years (2005-2013). The variable of choice for measuring aid effectiveness in reducing poverty in this present study is the human development index (HDI), a non-monetary poverty measure. Overally, the study finds thataid has a negative and no significant impact on poverty reduction, supporting the works of the public choice hypothesis. The negative and insignificant results could beexplained by aid misallocation, misuse and lack of absorptive capacity by recipient countries. Secondly for the analysis of how aid can be made more effective in reducing poverty, empirical evidence suggests that institutional quality, control of corruption and trade openness are vital for aid effectiveness. Economic growth and trade openness have been found to be necessary conditions for poverty reduction