Publication Date

4-22-2004

Abstract

Developing countries face challenges of massive poverty, slow GDP growth, high mortality rates from illnesses, and low levels of education. The governments in these countries do not have sufficient financial resources to fight these challenges effectively. Foreign aid has played an instrumental role in the implementation of development programs to combat poverty. The purpose of this paper is to examine whether foreign aid has a positive impact on development. Development in this paper is measured using the human development index that incorporates a knowledge index, health index, and standard of living index. Social aid is used to capture foreign aid towards development purposes. The hypothesis that foreign aid has a positive effect on HDI is tested using ordinary least squares regression. Regression results show that foreign aid has a negative relationship with development. The findings of the study indicate that foreign direct investment and domestic investment play a significant role in a country's development.

Disciplines

Economics

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