Nexus between Foreign Aid and Economic Growth: Evidences from Bangladesh

Abstract

Bangladesh receives about $56.5 billion foreign aid during 1971-2012 periods. This paper analyzes 33 years data for 1980-2012 periods to show the effects of foreign aid on the economic growth of Bangladesh. This study estimates eight models including three for last three decades (1980-1990, 1991-2001, 2002-2012), four for the four different government periods, namely, Military government period (1982)(1983)(1984)(1985)(1986)(1987)(1988)(1989)(1990), BNP (Bangladesh Nationalist Party) government (1991)(1992)(1993)(1994)(1995)(2002)(2003)(2004)(2005)(2006) , BAL (Bangladesh Awami League) government (1996)(1997)(1998)(1999)(2000)(2001)(2009)(2010)(2011)(2012) and the Whole Democratic government period and one for entire period . This research finds that, foreign aid has positive effect on the economic growth of Bangladesh and it is statistically significant in two models. The contribution of aid to GDP is falling overtime. This paper also reveals that the aid generates decreasing returns because of capacity constraint of Bangladeshi institutions to utilize foreign aid effectively. This finding is consistent with previous findings of different researches.