Foreign Financial aid as Growth Stimulators in Arabian Economies: The role of institutional factors

This thesis aims to investigate the impact of foreign financial aid on economic growth for ten Arab countries over the period 1990–2018. Although the question of foreign financial aid is an old one, it has a special significance in existing studies in the light of fundamental institutional (policy, governance, corruption and bureaucracy) changes in the receiver countries especially in Arab World. In particular, we test the hypothesis that prevails in previous studies on the effectiveness of foreign financial aid in poor and developing countries, that the positive effect of foreign financial aid is conditional on good governance, good policy, anti-corruption and adhocracy. It uses a variety of econometric models to test the impact foreign financial aid on economic growth, including both time-series and panel data models. The findings of the study suggest that no consistent link exists between economic growth and foreign financial in countries under investigation. However, the foreign financial aid appears a significant effect on economic growth if combined with policy index. In contrast, foreign financial aid has had negative impact on economic growth if combined with high corruption or bad governance or excessive bureaucracy. Country-specific results show a significant positive relationship for five countries: Algeria, Iraq, Jordan, Lebanon and Libya. The results also indicate that institutional factors are as important as other classic growth determinants: the results confirm that institutional factors affect economic growth not only directly, but also indirectly by improving the growth-enhancing effects of other classic growth factors such as foreign financial aid, foreign direct investment and trade openness.