Aid Pro-poor Spending And Welfare In Ethiopia

The objective of the paper is to test the hypothesis that aid through funding pro-poor publicrnexpenditures can improve welfare in Ethiopian. An index of pro-poor expenditures hasrnbeen constructed to analyze this transmission mechanism. In order to obtain a coefficientrnon aid variable that includes its indirect effect through public expenditure allocation arnregressor is constructed. The estimation is conducted based on the annual data betweenrn1965/66 and 2001/02 using the johanson maximum likelihood Procedure.rnThe empirical analysis supports the hypothesis regarding aid effectiveness on povertyrnthrough funding pro-poor expenditures. On the other hand the result shows thoughrndomestic revenue significantly contributes in financing pro-poor public expenditure, nonrnaid financed pro-poor public spending is rather found to be inefficient in improvingrnwelfare. The result further reveals the impact of growth on welfare is insignificantrnimplicating that growth by its own accord is not enough in Ethiopia

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