Inclusive growth in Sub-Saharan Africa: does sectoral foreign aid matter?

Abstract

The aim of this study is two folds. One is to investigate the extent of inclusive growth in sub-Saharan Africa and two is to examine the effects of sectoral foreign aid on inclusive growth in sub-Saharan Africa from 2000 to 2019. The study utilised the Asian Development Bank Framework for Inclusive Growth (FIGI) to generate an index for inclusive growth. The index was employed to investigate the effects of inclusive growth on sectoral foreign aid in sub-Saharan Africa. The first objective revealed that inclusive growth in sub-Saharan Africa is low and declining. This is in stark contrast with what is obtainable in other regions of the world. The second objective employed a Two-Step Instrumental Variable General Method of Moment and Method of Moment Quantile Regression and showed that sectoral foreign aid is positive and significant to inclusive growth. Contrary to expectation, the study observed that foreign aid is not detrimental to economic and social progress in sub-Saharan Africa and that causality exists between the various sectoral foreign aid and inclusive growth. Thus, in sub-Saharan Africa, foreign aid and local investment in health, education, and other socioeconomic infrastructure that aids inclusion and underpins shared prosperity must be pursued.