Beyond Aid Volumes: Multidimensional Aid Dependency, Institutional Quality and Economic Growth in Sub-Saharan Africa

Economic growth and the effectiveness of official development assistance (ODA) have long been a topic of debate, with the current concern being that there are high levels of aid dependency in Sub-Saharan Africa, despite low levels of structural transformation. The study analyses the growth impacts of multidimensional ODA dependency, the moderating effect of institutional quality and the possible thresholds of aid dependency in an unbalanced panel of 48 Sub-Saharan African countries over the period 2000–2025. Two-way fixed effects, System Generalized Method of Moments, Difference Generalized Method of Moments, and Common Correlated Effects Pooled are used to analyze a principal component-based ODA Dependency Index, and least-squares threshold regression is used to investigate multiple thresholds. These results show that there is a strong negative correlation between aid dependency and economic growth, while institutional quality is consistently positive to growth, but does not significantly moderate the aid–growth relationship. There are no stable thresholds for aid dependency as a function of the specification of the index. The findings highlight the need to improve domestic resource mobilization, productive investment and institutional capacity to decrease reliance on structural aid and ensure sustainable economic growth in the long term.