The Effect of Official Development Assistance on Inclusive Development: Evidence for Sub-Sahara Africa

The effect of international aid on the economic development of recipient countries has not been conclusive, nor is aid effectiveness metrics simple and robust. This paper scrutinizes the nexus of official development assistance (ODA) and inclusive development. The data covers 34 African countries for the period 1991 to 2018. The simple OLS regression shows a negative association between ODA and inclusive development. Numerous researchers have claimed the same thing about the relationship between foreign aid and economic growth. However, paper statistically proves that the negative association between ODA and inclusive development is due to an omitted variable. Accordingly, this paper's unique addition is that it uses the instrumental variable in the two-stage linear square (2SLS) regression model and claims that ODA is a statistically significant positive determinant of inclusive development and ODA should be channelled to climate change, demographic pressure, and CPIA.