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This study examined the link between foreign aid and human development index (HDI) in African countries using data for 54 African countries from 2013 to 2022. The 2-step system GMM is applied for foreign aid and human development index nexus while the robustness check is done by Difference GMM. The study found a negative relationship between foreign aid and human development index as well as a positive relationship between the squared foreign aid and human development index, suggesting a U-shaped relationship between foreign aid and HDI. This indicates that aid effectiveness is contingent on its quantity. On the other hand, government budget, and government effectiveness exhibit negative relationship with human development index. The study underscores the importance of targeted foreign aid, efficient budget allocation, effective governance and prioritize attracting high-quality Foreign Direct Investment (FDI) for sustained human development. Policymakers should prioritize governance reforms to enhance the effectiveness of aid. Strategic planning that considers the quantity and quality of aid is essential for positive human development outcomes in Africa.
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(Wudil et al., 2024)
Wudil, A. A., Saad, N. M., Lacheheb, Z., & Muhammadd, R. (2024). Does U-Shaped Relationship Hold Between Foreign Aid and Human Development Index Across African Countries? An Empirically Analysis. International Journal of Academic Research in Accounting Finance and Management Sciences, 14(1), 249–262.
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