The long-run relationship between ODA, growth and governance: An application of FMOLS and DOLS Approaches

Africa has been received an important amount of foreign aid for several decades; however, it is among the poorest regions in the world. This study examines the relationship between foreign aid, economic growth and governance in the African region for the period of 1996-2014. On fully applying both technique DOLS and FMOLS. In the first stage of this study, we examine the effet of foreign aid on economic growth. In the second stage, we assess the intermediary role of institutions in the relationship between Foreign aid and economic growth in African countries. It was found that Foreign aid has a negative effect on economic growth in African countries in both of FMOLS and DOLS models. However, empirical results indicate that foreign aid improves in terms of economic growth in the presence of good institution quality only in DOLS model