The effects of foreign aids on economic development of Afghanistan

Abstract

The role of foreign aid in supporting economic development and its effectiveness in decreasing poverty in the developing countries have been an intense topic of debate in the development context. This dissertation focuses on the social economic costs related to foreign aid in Afghanistan. The aim is to suggest a series of actions and policies to make foreign aid programs more effective on economic development and governance in Afghanistan.

The researcher applied quantitative research methods and employed secondary time series annual data for the period of 1960-2021. The study used. The study conducted the analysis of time series data through ADF to check Stationarity of each variable first and then Johansen co-integration tests to assess the long run relationship of foreign aid and GDP of Afghanistan. All analyses were carried out using econometric software package EView 10. The results of ADF tests showed that variables ODA and GDP of Afghanistan were stationary at first difference. The Johansen co-integration test authenticated that there is long-run relationship between foreign aid and GDP of Afghanistan. Based on the result of the OLS test, the result is statistically significant according to the p-value of 5%, and the existence of the long-run relationship between GDP and ODA is confirmed. The 1% change in net official development assistance leads to a 5.6% change in GDP.