The Effect Of Foreign Aid On Agriculture, Education And Health Sectors In Ghana

Abstract

This study has observed the impact of foreign aid to the agriculture, education and health sectors, on the growth of the respective sectors in Ghana, over a period from 1980 to 2013 using the Vector Autoregression (VAR) approach. The necessary time series tests such as stationary test, cointegration test, error correction, and Granger causality tests in vector error correction model were carried out. The empirical results from the regression reveals that, foreign aid has a significant positive impact on the growth of the agriculture and health sectors in the short run. On the other hand, foreign aid has a significant negative impact on the growth of the sector in the short run. In the long run, however, foreign aid has negative impact on all the three sectors. The study also reveals a significant negative impact of Trade on agricultural growth but insignificant on education and health. The causality tests show that there is no causal relationship between agriculture aid and the growth of the agriculture sector. However, there is a one way causal relationship that flows from education aid to the growth of the education sector; and from health aid to the growth of the health sector. For these reasons, it is suggested that the arrangement of accountability and transparency should be devised to reduce any possibility of aid fungibility in the education sector. Also, the fact that foreign aid enhances growth in the health and agriculture sectors suggest that, efforts should be taken in order to derive maximum benefits from aid that goes to these sectors.