Analysis of the Impact of Official Development Assistance on Economic Growth in Zambia

초록

Official development assistance (ODA) is of particular importance in the development process of many developing countries that lack sufficient domestic finances to pursue their economic growth. One such country is Zambia, which although resource rich, is an aid-dependent country with a poor economic performance. It is assumed that ODA will promote the economic growth of recipient countries, thereby alleviating poverty and raising living standards. Despite the fact that on a worldwide scale, there has been extensive research on the effects of aid on economic growth, very few studies of this type have been conducted in Zambia. In this study, we performed vector error correction modeling, an estimation technique based on an improved version of the neoclassic theoretical growth model, to quantify the short- and long-term associations between ODA and economic growth in Zambia from 1988 to 2019. Our findings reveal that whereas there is no long-term causality between ODA and economic growth, there is a short-term association, thereby indicating that ODA can make a significant positive short-term contribution to the national gross domestic product. The results also provide evidence to indicate that private external resource flows have contributed positively to economic growth during the period under review. On the basis of these findings, it can be concluded that Zambia should continue to accept ODA, as this is a vital source of external finance that is necessary to boost its economy. However, the country should also develop a realistic “exit” strategy by focusing attention on how to raise revenue in the future, as domestically generated revenue will contribute to expanding the policy space and national ownership of the development agenda.

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