Abstract:
The aid-growth nexus continues to be an ongoing developmental issue because of
the following two questions that remain unanswered. First, why do foreign aid
recipients remain poor? Second, why do developed countries continue to give aid,
irrespective of how the proceeds are used in receiving countries? Zimbabwe‟s
economy is, since 1997, characterised by poor exports performance, increasing
public debt burden, and poor foreign direct investment flows. The result is
insufficient gross national savings to promote sustainable economic development
through sound investment. One known feasible way in literature to finance this
savings gap is through foreign aid. This study, therefore, aims to investigate the
impact and causal relationships between foreign aid and economic growth in
Zimbabwe using an autoregressive distributed lag (ARDL) approach and an error
correction model (ECM) based Granger-causality framework. The impact results
suggest a long-run relationship between foreign aid and economic growth, while
causality results show no evidence of causality between the two variables. Policy
implications are discussed.
