The Impact of Foreign Aid on Economic Growth in Bangladesh: An Modern Time Series Econometric Approach

Abstract

This study examined the long run relationship between foreign aid (FAID) and economic growth in Bangladesh using the two modern time series econometric approaches- bound testing Autoregressive Distributed Lag (ARDL) Models or Unrestricted Error Correction Model (UECM) and Engel Granger two step procedures during the period of 1973-2007 and found that FAID and GDP are not co-integrated. However, using Granger Causality test, it was shown that the FAID was not significantly causing the GDP per capita both in the short and long run and for other control variables - openness and FDI- the result was almost same but for capital formation the result was positive. The study suggested taking proper steps so that these variables can be used as contributors to the economic development.