South Asian Journal of Management

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Effect of Foreign Aid on Economic Growth and Development in India:An Empirical Analysis


Affiliations
1 Department of Humanities and Social Sciences, National Institute of Technology (NIT), Rourkela-769008, Odisha, India
2 Department of Humanities and Social Sciences, National Institute of Technology (NIT), Rourkela, Odisha, India
     

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The present study examines the impact of foreign aid on both economic growth and development in India by using Ordinary Least Square (OLS) test from the period 1975-76 to 2009-10. The study analyzes plan-wise distribution and composition of foreign aid inflows into India. It attempts to explain the effect of some major macroeconomic variables on both economic growth and development in India. The results indicate that foreign aid has been considered as a significant determining factor for both economic growth and development of India. The simple OLS test results show that the impact of foreign aid on both economic growth and development is positive. Finally, the study concludes that the impact of foreign aid on economic growth is higher than its impact on economic development, which indicates that aid contributes to growth but that growth is not translated into meaningful development. This inadequate transformation may be caused due to underutilization of foreign aid, inequality present in the distribution of wealth and income, poor economic policies, poverty and corruption.
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  • Effect of Foreign Aid on Economic Growth and Development in India:An Empirical Analysis

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Authors

Kalpana Sahoo
Department of Humanities and Social Sciences, National Institute of Technology (NIT), Rourkela-769008, Odisha, India
Narayan Sethi
Department of Humanities and Social Sciences, National Institute of Technology (NIT), Rourkela, Odisha, India

Abstract


The present study examines the impact of foreign aid on both economic growth and development in India by using Ordinary Least Square (OLS) test from the period 1975-76 to 2009-10. The study analyzes plan-wise distribution and composition of foreign aid inflows into India. It attempts to explain the effect of some major macroeconomic variables on both economic growth and development in India. The results indicate that foreign aid has been considered as a significant determining factor for both economic growth and development of India. The simple OLS test results show that the impact of foreign aid on both economic growth and development is positive. Finally, the study concludes that the impact of foreign aid on economic growth is higher than its impact on economic development, which indicates that aid contributes to growth but that growth is not translated into meaningful development. This inadequate transformation may be caused due to underutilization of foreign aid, inequality present in the distribution of wealth and income, poor economic policies, poverty and corruption.