When Is Aid Credible in the Emerging Asian economies? An Empirical Re-assessment from the Perspective of Economic Growth

The notion that external financial assistance and foreign capital inflows impacting economic growth remain prevalent across development literature. We explore this relationship in the context of 16 emerging Asian economies by incorporating several macroeconomic parameters like inflation rate, domestic investment, and exchange rate. We employ the estimation techniques like FE-GLS and GMM (generalized method of moments) methods. Our results reveal that foreign aid complements FDI (foreign direct investment) and enhances economic growth. The combined effects of both aid and FDI on growth is positive and statistically significant. We then provide the evidences of positive association of financial development, trade openness, domestic investment, and inflation to economic growth. This overall state that economies must retrospect the aid scenario by harnessing positive effects and try to be self-reliant by augmenting the domestic investment, institutions, and attracting more capital inflows over the year.