Aid Effectiveness on Living Standards - How Does Aid Affect Human Development Index HDI in Sub-Saharan Africa

Abstract

This study looks at whether aid affects Human Development Index (HDI), focusing on the geographical region of Sub-Saharan Africa. Aid effectiveness is often measured in economic growth, why we choose to see how aid affects the standards of living instead. Data on HDI have been collected from the HDRO, both from their database and their annual reports, while data on aid come from the OECD database DAC2a. We experienced the HDI definition changing over time as well as general data availability to be a problem. We performed two different econometric analyses, the first ranging between the years 1993-2007 and the second between the years 2005-2011. The study finds that the aggregate term for aid, ODA excluding debt, has a significant positive effect on the HDI of the aid recipient within the first year of receiving it. We also find evidence of effects of different aid variables that are lagged 1-3 years. These are humanitarian aid and technical cooperation as well as ODA excluding debt. The coefficients of these lagged variables vary between positive and negative, showing differences in the effect of different types of aid as well as differing effects over time. Our findings suggest that the overall effect of aid is positive. We recommend further research on a country-specific level as well as adding corruption as a further influence.