Foreign Aid and Economic Growth: An Econometric Study of Afghanistan


  • Sayed Kifayatullah Fazlly Department of National Economics, Faculty of Economics, Nangarhar University, Afghanistan



Net official development assistance, Economic growth, ARDL bounds test



This study aims to investigate the impact of foreign aid on economic growth in Afghanistan.


The study employs various econometric techniques, including time series analysis. Data for the study are sourced from the country economy and world development indicators of the World Bank, covering the period from 1980 to 2021. The analysis includes Augmented Dicky Fuller and Phillips Perron unit root tests, the ARDL model, the Breusch-Godfrey Serial Correlation LM Test, and the ARDL bounds test.


The economic growth series is found to be level stationary, while the net official development assistance series is first difference stationary. Net official development assistance exhibits a significant positive short-run relationship with economic growth. No serial correlation is observed between net official development assistance and economic growth. Net official development assistance demonstrates a significant positive long-run relationship with economic growth.

Research limitations/implications

The study is based on data up to 2021, which may not capture recent developments or changes in the relationship between foreign aid and economic growth. The analysis relies on the accuracy and reliability of the data provided by the World Bank and other sources.


This study contributes empirical evidence on foreign aid's impact on economic growth in Afghanistan, using a range of econometric techniques. The findings highlight the importance of donor-friendly policies to increase development assistance to Afghanistan.


Abd el Hamid Ali, H. (2013). Foreign aid and economic growth in Egypt: A cointegration analysis. International Journal of Economics and Financial Issues, 3(3), 743-751.

Adebayo, T. S., & Beton Kalmaz, D. (2020). Ongoing debate between foreign aid and economic growth in Nigeria: a wavelet analysis. Social Science Quarterly, 101(5), 2032-2051.

Babalola, S., & Shittu, W. (2020). Foreign aid and economic growth in West Africa: examining the roles of institutions. International Economic Journal, 34(3), 534-552.

Bacha, E. L. (1990). A three-gap model of foreign transfers and the GDP growth rate in developing countries. Journal of Development Economics, 32(2), 279-296. Retrieved from doi:

Breusch, T. S. (1978). Testing for autocorrelation in dynamic linear models. Australian economic papers, 17(31), 334-355.

Country Economy (2023). Afghanistan GDP, Available online at: Retrieved: 25.08.2023.

Dickey, D., & Fuller, W. (1979). Distribution of the Estimators for Autoregressive Time Series With a Unit Root. JASA. Journal of the American Statistical Association, 74. doi:10.2307/2286348

Fasanya, I. O., & Onakoya, A. B. (2012). Does foreign aid accelerate economic growth? An empirical analysis for Nigeria. International journal of economics and financial issues, 2(4), 423-431.

Feeny, S. (2005). The impact of foreign aid on economic growth in Papua New Guinea. Journal of development Studies, 41(6), 1092-1117.

Godfrey, L. G. (1978). Testing against general autoregressive and moving average error models when the regressors include lagged dependent variables. Econometrica: Journal of the Econometric Society, 1293-1301.

Irandoust, A., & Hatemi, A. (2005). Foreign aid and economic growth: new evidence from panel cointegration. Journal of economic development, 30(1), 71-80.

Jena, N. R., & Sethi, N. (2020). Foreign aid and economic growth in sub-Saharan Africa. African Journal of Economic and Management Studies, 11(1), 147-168.

Kargbo, P. M. (2012). Impact of foreign aid on economic growth in Sierra Leone: Empirical Analysis. Econstor, WIDER Working paper, No.2012/07.

Mallik, G. (2008). Foreign Aid and Economic Growth: A Cointegration Analysis of the Six Poorest African Countries. Economic Analysis & Policy, 38(2).

Maruta, A., Banerjee, R., & Cavoli, T. (2020). Foreign aid, institutional quality and economic growth: Evidence from the developing world. Economic Modelling, 89. doi:10.1016/j.econmod.2019.11.008

Mbah, S., & Amassoma, D. (2014). The linkage between foreign aid and economic growth in Nigeria. International Journal of Economic Practices and Theories, 4(6), 1007-1017.

OECD (2019). “Official Development Assistance”, Available online at: development/ finance standards/ official-development-assistance, Retrieved: 10.08.2020.

Pesaran, M. H., & Shin, Y. (1995). An autoregressive distributed lag modelling approach to cointegration analysis (Vol. 9514): Department of Applied Economics, University of Cambridge Cambridge, UK.

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of applied econometrics, 16(3), 289-326.

Phillips, P. C., & Perron, P. (1988). Testing for a unit root in time series regression. biometrika, 75(2), 335-346.

Sakyi, D. (2011). Trade openness, foreign aid and economic growth in post-liberalisation Ghana: An application of ARDL bounds test. Journal of Economics and International Finance, 3(3), 146.

Sethi, N. (2014). Foreign aid vs. economic development: Exploring the empirical linkage for India, Sri Lanka and Maldives.

Solow, R. (1956). A Contribution to the Theory of Economic Growth”, The Quarterly Journal of Economics, Vol. 70, No1, pp. 65-94.

Stiglitz J. et Weiss A.(1981). Credit Rationing in markets with imperfect information", Americain Economic Review, juin, 393-410.

Tarp, F. (2000). Foreign aid and development: lessons learnt and directions for the future: Routledge, New Fetter Lane London.

Tiwari, A. K. (2011). Foreign aid, FDI, economic freedom and economic growth in Asian countries. Global Economy Journal, 11(3).

Upadhyaya, K. P., Pradhal, G., Dhakal, D., & Bhandari, R. (2007). Foreign aid, FDI and economic growth in East European countries. University of New Haven,Economics Faculty Publications.

UNDP (2023). Afghanistan Socio-Economic Outlook, Available online at: Retrieved 3.09.2023.

World Bank (2023). World Development Indicators, Availible online at:, Retrieved 25.08.2023.

Wiliams, V. (2015). “Foreign Aid”, Encyclopædia Britannica, Available online at:, Retrieved: 10.08.2020.

Yiew, T.-H., & Lau, E. (2018). Does foreign aid contribute to or impeded economic growth. Journal of International Studies Vol, 11(3), 21-30.