Effect of Foreign Aid on Human Development in Sub-Saharan Africa:A System GMM Approach

Using data for 47 SSA countries from 2000 to 2016, the study examined the effect of foreign aid on human development in SSA by employing the System-GMM approach, which is specifically applicable to the present case. Results revealed that aid did not affect human development in SSA, whereas, corruption was found to reduce HDI, while trade openness improved it. Validity of results was confirmed by the Arellano-Bond test for autocorrelation in the disturbance term and the Hansen and Sargan tests for the validity of instrumental variables. The study recommended effective framework for utilization of foreign aid and reduction of corruption.