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Citation Information

Type Thesis or Dissertation
Title An Analysis of the Effectiveness of Foreign Aid Flows to Guyana using the Autoregressive Distributed Lag (ARDL) Approach to Cointegration: 1978-2002
Author(s)
Publication (Day/Month/Year) 2002
URL http://www.lirds.org/THESES/MASTERS/M. Soc. Thesis - Clement Henry.pdf
Abstract
The thesis examined issues related to effectiveness of foreign aid in Guyana. The general
view in development literature is that providing sufficient amounts of capital to
underdeveloped areas would create the conditions necessary for long-term economic
growth and development. However, given the chequered history of foreign aid and the
increasing scarcity of budgetary resources in donor countries, it has become necessary to
reassess the effectiveness of foreign aid and to identify means of maximising its benefits. The motivation of this study was to ascertain the value of foreign aid as a determinant of
economic growth in Guyana, which has encountered difficulties attracting foreign private
flows because of its economic structure. Identifying the actual effect foreign aid or any
other type of resource has on growth, can generate insight into which development
policies promote sustained economic growth, thus providing the country with better
suggestions for long-term development strategies.
Empirical analysis was conducted, using the autoregressive distributed lag (ARDL)
approach to cointegration. This methodology is useful for small samples, since it is
helpful in avoiding the finite sample bias and is more efficient than the vector
autoregressive (VAR) method. Moreover, the single equation ARDL estimator delivers
super-consistent estimates of the long-run parameters and asymptotically valid t- ratios,
even in the presence of the endogenous explanatory variable.
A careful interpretation of the result suggests that it is difficult to take comfort in the
view that aid guarantees long-run growth. Theoretically, we expected aid, a component
of foreign savings, to boost investment and growth in Guyana, a country, which suffers
from capital resource scarcity. Notwithstanding the long-run result, our analysis indicates
that there was a short term significantly positive relationship between aid and economic
growth. Perhaps the most important implication is in delineating the obstacles in the path
of aid achieving long-run growth. Since it is generally accepted that economic and
political institutions are important to growth, then fundamental improvement is necessary
in this area if Guyana is to capitalise fully on the opportunities that presents themselves in
the aid arena. In order to maximise the development benefits of foreign aid, the
Government of Guyana with the help of the donor community need to strengthen its self- development capacity, continue to implement structural reforms necessary for sustained
growth, and focus on personnel training to gradually improve institutional
capacity. Government should also seek to provide incentives to retain highly qualified
and skilled personnel to aid in the development drive. In addition, migrants can be
encouraged to be agents of development by contributing to the country’s growth thrust,
through remittances, investment and expenditure, and entrepreneurial activities to achieve
sustained growth.

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