Foreign aid and fiscal expenditure behavior in sub-saharan Africa: a multivariate cross country analysis.

This study confines itself to using secondary data in establishing empirical evidence on the impact of foreign aid on fiscal expenditure behaviors for selected four Sub Sahara African countries. The countries include Tanzania, Kenya, Zambia and Ghana. An empirical investigation using annual time series data has been carried covering the periods 1961 to 2000 for Tanzania and 1971 to 2000 for Kenya, Zambia and Ghana. In this study, the recent developments so far made in Time Series Econometrics have been effectively utilized especially by taking consideration of the time series properties of the data. The multivariate technique of analyzing data through Impulse Response Functions, Granger Causality Test and Variance Decomposition has as well been carried out. From the analysis, it has been established that for the four countries, neither the claim that foreign aid displaces revenue collection efforts nor foreign aid flows leading to irresponsible high government expenditures holds. By establishing this, the study has been able to depart from unfounded common perception that foreign aid flows displaces to revenue collection efforts as well as irresponsible government expenditures. Following these findings, the study argues that donor countries should continue to support the developing countries in their pursuit for sound and sustainable pro poor economic growth. The conclusion made in the study therefore, is that, developing countries can only disentangle themselves from the perverse object poverty if there is a continued assurance by developed donor countries that the much needed aid assistance would continue to be disbursed. Meanwhile, the developing countries should as well continue build and strengthen the internal capacity to finance their different development projects.