Macroeconomic Impacts Of External Assistance In Ethiopia

The thesis examines the impacts of external assistance on the economic performance of therncountry for the period 1960/61 –1999/00. The analysis makes use of the Johansen maximumrnlikelihood estimation procedure estimating five equations to identify the independent effect ofrnforeign assistance on investment and/or growth, saving, government tax revenue, governmentrntax expenditure and real exchange rate. Accordingly, it is found that external assistancernnegatively affected the investment rate and hence the growth rate of the economy. The paperrnfurther investigates these unexpected negative relationships between foreign inflows andrneconomic growth. The insignificant effect of external grant on domestic saving, negativernimpact of external grant on government consumption and the ‘Dutch Disease’ effect of bothrnforeign grant and loan is responsible for the negative impact of foreign assistance onrneconomic growth of the economy.

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