Aid, Domestic Governance, and Agricultural Growth in Developing Countries

DOI 10.7160/aol.2024.160104
No 1/2024, March
pp. 35-47

Gidiglo, F. K., Srofenyoh, F. Y., Agyei-Henaku, K. A. A.-O., Badu-Prah, Ch., Agyeiwaa-Afrane, A. and Djokoto, J. G. (2024) "Aid, Domestic Governance, and Agricultural Growth in Developing Countries", AGRIS on-line Papers in Economics and Informatics, Vol. 16, No. 1, pp. 35-47. ISSN 1804-1930. DOI 10.7160/aol.2024.160104.


This study departed from other agricultural aid-growth studies by measuring growth as the annual growth rate of agricultural value added and accounting for the moderating role of governance on the aid-growth effect. Using data on a panel of 117 developing countries from 1996 to 2020, aid negatively influenced agricultural growth. Governance had a negative but insignificant independent effect on growth. However, the interaction of governance with aid turned the aid-growth effect from a significant negative to a statistically insignificantly positive effect. Since the low level of governance produced the positive interaction effect, of the aid-growth relationship, escalation of (good) governance could produce a strong effect.


Agricultural aid, agricultural growth, aid-effectiveness, developing countries, governance.


  1. Abbas, S. A., Selvanathan, E. A. and Selvanathan, S. (2022) "Remittances, foreign aid, and economic growth in Bangladesh: an empirical Analysis", In "Towards a Sustainable Economy: The Case of Bangladesh", 1st ed., Routledge, pp. 52-73. E-ISBN 978-1-003-23191-2.
  2. Adedokun, A. J. (2017) "Foreign aid, governance and economic growth in sub‐Saharan Africa: Does one cap fit all?", African Development Review, Vol. 29, No. 2, pp. 184-196. ISSN 1467-8268. DOI 10.1111/1467-8268.12249.
  3. Akramov, K. T. (2012) "Foreign aid allocation, governance, and economic growth", IFPRI Issue brief , 184 p. ISBN 978-0-89629-809-5. DOI 10.2499/9780812244656.
  4. Alabi, R. A. (2014) "Impact of agricultural foreign aid on agricultural growth in Sub-Saharan Africa: A dynamic specification", International Food Policy Research Institute. [Online]. Available: https:// dynamic [Accessed: Nov. 15, 2022].
  5. Aljonaid, N. A. A., Qin, F. and Zhang, Z. (2022) "The heterogeneous impact of sectoral foreign aid inflows on sectoral growth: SUR evidence from selected sub-Saharan African and MENA Countries", Journal of Risk and Financial Management, Vol. 15, No. 3, pp. 1-45. E-ISSN 1911-8074. DOI 10.3390/jrfm15030107.
  6. Anatolyev, S. (2005) "GMM, GEL, serial correlation, and asymptotic bias", Econometrica, Vol. 73, No. 3, pp. 983-1002. E-ISSN 1468-0262. ISSN 0012-9682. DOI 10.1111/j.1468-0262.2005.00601.x.
  7. Arellano, M., and Bond, S. (1991) "Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations", The Review of Economic Studies, Vol. 58, No. 2, pp. 277-297. E-ISSN 1467-937X, ISSN 0034-6527. DOI 10.2307/2297968.
  8. Arellano, M. and Bover, O. (1995) "Another look at the instrumental variable estimation of error- components models", Journal of Econometrics, Vol. 68, No. 1, pp. 29-51. ISSN 0304-4076. DOI 10.1016/0304-4076(94)01642-D.
  9. Arndt, C., Jones, S. and Tarp, F. (2010) "Aid, growth, and development: have we come full circle"?, Journal of Globalization and Development, Vol. 1, No. 2, pp. 1-27. ISSN 1948-1837. DOI 10.2202/1948-1837.1121.
  10. Asongu, S. A. and Nwachukwu, J. C. (2016) "The mobile phone in the diffusion of knowledge for institutional quality in sub-Saharan Africa", World Development, Vol 86, pp. 133-147. ISSN 0305-750X. DOI 10.1016/j.worlddev.2016.05.012.
  11. Awan, R. U., Akhtar, T., Rahim, S., Sher, F. and Cheema, A. R. (2018) "Governance, corruption and economic growth", Pakistan Economic and Social Review, Vol. 56, No. 1, pp. 1-20. E-ISSN 2224-4174, ISSN 1011-002X.
  12. Bauer, P. T. and Yamey, B. S. (2018) "Foreign aid: What is at stake?", In Third World, 2 nd. ed., pp. 115-138. Routledge. E-ISBN 9781351316125. DOI 10.4324/9781351316125-7.
  13. Boone, P. (1996) "Politics and the effectiveness of foreign aid", European Economic Review, Vol. 40, No. 2, pp. 289-329. ISSN 0014-2921. DOI 10.1016/0014-2921(95)00127-1.
  14. Boţa-Avram, C., Groşanu, A., Răchişan, P. R. and Gavriletea, M. D. (2018) "The bidirectional causality between country-level governance, economic growth and sustainable development: A cross-country data analysis", Sustainability, Vol. 10, No. 2, pp. 502. ISSN 2071-1050. DOI 10.3390/su10020502.
  15. Breusch, T. S. and Pagan, A. R. (1980) "The Lagrange Multiplier test and its applications to model specification in econometrics", Review of Economic Studies, Vol. 47, No. 1, pp. 239-253. E-ISSN 1467-937X, ISSN 0034-6527. DOI 10.2307/2297111.
  16. Burnside, C. and Dollar, D. (2000) "Aid, policies, and growth", American Economic Review, Vol. 90, No. 4, pp. 847-868. E-ISSN 1944-7981, ISSN 0002-8282. DOI 10.1257/aer.90.4.847.
  17. Burnside, C. and Dollar, D. (2004) "Aid, policies, and growth: Reply", American Economic Review, Vol. 94, No. 3, pp. 781-784. E-ISSN 1944-7981, ISSN 0002-8282. DOI 10.1257/0002828041464524.
  18. Chenery, H. B. and Strout, A. M. (1966) "Foreign Assistance and Economic Development", American Economic Review, Vol. 56, No. 4, pp. 679–733. E-ISSN 1944-7981, ISSN 0002-8282.
  19. Collier, P. and Dollar, D. (1999) "Aid Allocation and Poverty Reduction", Development Economics Research Group, World Bank. Davis, T. J. (2017) "Good governance as a foundation for sustainable human development in sub-Saharan Africa", Third World Quarterly, Vol. 38, No. 3, pp. 636-654. E-ISSN 1360-2241, ISSN 0143-6597.
  20. Djokoto, J. G., Gidiglo, F. K., Srofenyoh, F. Y., Agyei-Henaku, K. A. A., Badu-Prah, C. and Arthur, A. A. A. (2022) "Agricultural development in the presence of foreign divestment: Policy options", Journal of Agriculture and Food Research, Vol. 7, p. 100250. ISSN 2666-1543. DOI 10.1016/j.jafr.2021.100250.
  21. Djokoto, J. G. (2023a) "Is foreign aid effective in the food manufacturing sector?", Journal of Agriculture and Food Research, Vol. 12, p. 100617. ISSN 2666-1543. DOI 10.1016/j.jafr.2023.100617.
  22. Djokoto, J. G. (2023b) "Food manufacturing foreign divestment and domestic investment in developed countries", Heliyon, Vol. 9, No. 5, p. e15642. ISSN 2405-8440. DOI 10.1016/j.heliyon.2023.e15642.
  23. Domar, E. (1946) "Capital expansion, rate of Growth, and employment", Econometrica, Vol. 14, No. 2, pp. 137-147. E-ISSN 1468-0262, ISSN 0012-9682. DOI 10.2307/1905364.
  24. Dowling, M. and Hiemenz, U. (1982) "Aid, Savings and Growth in the Asian Region", Economic Office Report Series 3, Asian Development Bank: Manila. ISSN 0012-1533. [Online]. Available: [Accessed: Nov. 10, 2022].
  25. Easterly, W. (1999) "The ghost of financing gap: Testing the growth model of the international financial institutions", Journal of Development Economics, Vol. 60, No. 2, pp. 423-438. ISSN 0304-3878. DOI 10.1016/S0304-3878(99)00047-4.
  26. Easterly, W. (2003) "Can foreign aid buy growth?", Journal of Economic Perspectives, Vol. 17, No. 3, pp. 23-48. ISSN 0895-3309. DOI 10.1257/089533003769204344.
  27. FAOSTAT (2023a) "Food and Agriculture Organisation of the United Nations, Foreign Direct Investment, Metadata", [Online]. Available: [Accessed: Jan.30, 2023].
  28. FAOSTAT (2023b) "Food and Agriculture Organisation of the United Nations, Country Investment Statistics Profile, Metadata". [Online]. Available: metadata. [Accessed: Jan. 30, 2023].
  29. FAOSTAT (2023c) "Food and Agriculture Organisation Database". [Online]. Available at: https:// [Accessed: Jan. 30, 2023].
  30. Gebremariam, H. (2018) "The Impact of Foreign Aid on Agricultural Growth of Ethiopia", Doctoral dissertation, St. Mary's University. [Online]. Available: handle/123456789/3952. [Accessed: Jan. 25, 2023].
  31. Greene, W. (2000) "Econometric Analysis", 4th ed, Prentice-Hall. ISBN 10 0130132977, ISBN 13 978-0130132970.
  32. Hansen, H. and Tarp, F. (2001) "Aid and growth regressions", Journal of development Economics, Vol. 64, No. 2, pp. 547-570. ISSN 0304-3878. DOI 10.1016/S0304-3878(00)00150-4.
  33. Harrod, R. F. (1939) "An essay in dynamic theory", The Economic Journal, Vol. 49, No. 193, pp. 14-33. E-ISSN 1468-0297, ISSN 0013-0133. E-ISSN 1468-0297. DOI 10.2307/2225181.
  34. Hausman, J. A. (1978) "Specification tests in econometrics", Econometrica: Journal of the Econometric Society, Vol. 46, No. 6, pp. 1251-1271. E-ISSN 1468-0262, ISSN 0012-9682. DOI 10.2307/1913827.
  35. Ighodaro, C. E. and Nwaogwugwu, I. C. (2015) "Effectiveness of foreign aid on the growth of the agricultural sector in Nigeria", Ethiopian Journal of Economics, Vol. 22, No. 2, pp. 131-146. ISSN 1993-3681. DOI 10.22004/ag.econ.259364.
  36. International Development Agency (IDA) (2021) "Agriculture". [Online]. Available: [Accessed: Jan. 30, 2022].
  37. Isham, J., Kaufmann, D. and Pritchett, L. H. (1997) "Civil liberties, democracy, and the performance of government projects", World Bank Economic Review, Vol. 11, No. 2, pp. 219-242. ISSN 0258-6770. DOI 10.1093/wber/11.2.219.
  38. Kaya, O., Kaya, I. and Gunter, L. (2012) "Development aid to agriculture and economic growth", Review of Development Economics, Vol. 16, No. 2, pp. 230-242. ISSN 1363-6669. DOI 10.1111/j.1467-9361.2012.00658.x.
  39. Mallik, G. (2008) "Foreign aid and economic growth: A cointegration analysis of the six poorest African countries", Economic Analysis and Policy, Vol. 38, No. 2, pp. 251-260. ISSN 0313-5926. DOI 10.1016/S0313-5926(08)50020-8.
  40. Maruta, A. A., Banerjee, R. and Cavoli, T. (2020) "Foreign aid, institutional quality and economic growth: Evidence from the developing world", Economic Modelling, Vol. 89, pp. 444-463. ISSN 0264-9993. DOI 10.1016/j.econmod.2019.11.008.
  41. Mosley, P. (1980) "Aid, savings and growth revisited", Oxford Bulletin of Economics and Statistics, Vol. 42, No. 2, pp. 79-95. E-ISSN 1468-0084, ISSN 0305-9049. E-ISSN 1468-0084. DOI 10.1111/j.1468-0084.1980.mp42002002.x.
  42. Mwakalila, E. (2019) "Foreign aid, external debt and economic growth in Africa: it all depends on governance", African Journal of Governance and Development, Vol. 8, No. 2, pp. 7-23. ISSN 2616-9045.
  43. Narteh-Yoe, S. N., Djokoto, J. G. and Pomeyie, P. (2022) "Aid, domestic and foreign direct investment in small states", Economic Research-Ekonomska Istraživanja, Vol. 36, No. 3, p. 2160998 . ISSN 1331-677X. DOI 10.1080/1331677X.2022.2160998.
  44. Nwaogu, U. G. and Ryan, M. J. (2015) "FDI, foreign aid, remittance and economic growth in developing countries", Review of Development Economics, Vol. 19, No. 1, pp. 100-115. ISSN 1363-6669. DOI 10.1111/rode.12130.
  45. Rodrik, D. (2000) "Institutions for high-quality growth: what they are and how to acquire them", Studies in Comparative International Development, Vol. 35, No. 3, pp. 3-31. ISSN 0039-3606. DOI 10.3386/w7540.
  46. Sarpong, S. Y. and Bein, M. A. (2021) "Effects of good governance, sustainable development and aid on quality of life: Evidence from sub-Saharan Africa", African Development Review, Vol. 33, No. 1, pp. 25-37. ISSN 1017-6772. DOI 10.1111/1467-8268.12488.
  47. Shaibu, A. F. and Shaibu, M. H. (2022) "Agricultural aid and growth in sub-Saharan Africa: a review of empirical evidence". AGRIS On-line Papers in Economics and Informatics, Vol. 14, No. 2, pp. 97-109. ISSN 1804-1930. DOI 10.7160/aol.2022.140208.
  48. Singh, R. (1985) "State intervention, foreign economic aid, savings and growth in LDCs: Some recent evidence", Kyklos, Vol. 38, No. 2, pp. 216-232. ISSN 1467-6435. DOI 10.1111/j.1467-6435.1985.tb02224.x.
  49. Stiernstedt, H. (2010) "Governance, Growth, and Aid Effectiveness", Lund University. [Online]. Available: download?func=downloadFile&recordOId=1661035&fileOId=1662476. [Accessed: Jan. 25, 2023].
  50. Stiglitz, J. E (2002) "Globalisation and its Discontent". W.W. Norton and Compan, 304 p. ISBN 10 0393051242, ISBN 13 978-0393051247.
  51. Stiglitz, J. E. and Charlton, A. (2006) "Aid for trade", International Journal of Development Issues, Vol. 5, No. 2, pp. 1-41. ISSN 1446-8956. DOI 10.1108/eb045861.
  52. Stojanov, R., Strielkowski, W. and Kowalska, K. (2013) "Migrants remittances, official development aid, and economic growth in developing countries", Ekonomista, Vol. 1, pp. 155-170. ISSN 0013-3205.
  53. Stojanov, R., Němec, D. and Žídek, L. (2019) "Evaluation of the long-term stability and impact of remittances and development aid on sustainable economic growth in developing countries", Sustainability, Vol. 11, No. 6, pp. 1538. ISSN 2071-1050. DOI 10.3390/su11061538.
  54. Stojanović, I., Ateljević, J. and Stević, R. S. (2016) "Good governance as a tool of sustainable development", European Journal of Sustainable Development, Vol. 5, No. 4, pp. 558-558. ISSN 2239-5938. DOI 10.14207/ejsd.2016.v5n4p558.
  55. United Nations Development Program (UNDP) (1997) "Governance for sustainable human development – a UNDP policy document", United Nations Development Programme. [Online]. Available at: [Accessed: Jan. 30, 2023].
  56. United States Agency for International Development (USAID) (2002) "USAID supports good governance". [Online]. Available: [Accessed: Jan. 30, 2023].
  57. Veiderpass, A. and Andersson, P. Å. (2011) "Is aid the capital component making countries efficient? A non-parametric production theory approach", Journal of Global Analysis, Vol. 2, No. 1, pp. 29-47. ISSN 2041-1944.
  58. Waya, A. F. (2020) "Effect of foreign agricultural aid and corruption on agricultural growth in Nigeria 2002-2013", Port Harcourt Journal of History and Diplomatic Studies, Vol. 7, No. 1, pp. 127-140. ISSN 1597-3778.
  59. Wooldridge, J. M. (2001) "Applications of generalized method of moments estimation", Journal of Economic Perspectives, Vol. 15, No. 4, pp. 87-100. ISSN 0895-3309. DOI 10.1257/jep.15.4.87.
  60. Wooldridge, J. M. (2002) "Econometric Analysis of Cross Section and Panel Data", Cambridge, MA: MIT Press. 1096 pp. ISBN 9780262232586.
  61. World Bank (2022a) "The World Bank in Small States. Overview". [Online]. Available: https://www. [Accessed: Jan.30, 2023].
  62. World Bank (2022b) "Evidence for Agriculture". [Online]. Available at: en/events/2016/11/07/Evidence-for-Agriculture. [Accessed: Jan. 30, 2023].
  63. World Bank (2023) "World Bank Development Indicators". [Online]. Available at: https://databank. [Accessed: Jan. 30, 2023].
  64. Yahyaoui, I., Hamdaoui, M. and Bouchoucha, N. (2019) "Official development aid effectiveness and economic growth in African countries: The role of the governance", MPRA Paper No. 95410, [Online]. Available: [Accessed: Jan. 30, 2023].
  65. Young, A. T. and Sheehan, K. M. (2014) "Foreign aid, institutional quality, and growth", European Journal of Political Economy, Vol. 36, pp. 195-208. ISSN 0176-2680. DOI 10.1016/j.ejpoleco.2014.08.003.

Full paper

  Full paper (.pdf, 667.28 KB).