It will increase competitiveness of firms and increase the production of domestic products and output. However, some researchers focusing on developing countries showed that the adverse effect of devaluation on output (see Krugman & Taylor, 1978, Acar (2000), and Seid, 2010,). The effect of currency devaluation on the economic growth of Ethiopian economy is not clear; that is the effect of devaluation on GDP per capita has a time varying effect; negative effect on the same year and positive effect on one year lagged (Tirsit, 2011). And Yilkal W. (2012) on the contrary of IMF’s argument devaluation have contractionary effect in the Ethiopian economy. Even though, an ambiguous results from empirical studies devaluation of currency has been used as a growth strategy by many developing
Another argument refutes the claim that lower taxes for the rich encourage them to invest more which brings about economic growth. In the late 1920s and once again in the earlier part of the last decade, a lot of money was put into speculative investments than productive investments. Hence, increased government spending on improving the labour force and infrastructure through revenue generated from taxes can possibly be more effective than investments in driving economic growth. Now let us look at the other side of the coin – the negative impact of taxation. Taking into consideration other factors such as government spending, business cycle conditions and monetary policy, research has consistently pointed towards the fact that taxes have a significant negative effect on economic
It is not possible for a country to really develop and grow if it does not directly target the problem of inequality” The question of inequality has been raised especially concerning developing countries and the models that are currently used to attempt to effect development and growth. It is not really clear what correlation effect inequality has on subsequent economic growth. Different types of data used and varying econometric methods lead to a varying array of conclusions. In this essay, it will be shown that there is a strong correlation between rising inequalities and growth, in a positive relationship, inspired from data collection and analysis by (Forbes, September 2000). Likewise, some opposing arguments that propose a negative relationship
Aluko (1961) and Brown (1962) reported positive impacts of FDI on Nigeria’s economy. Endozien (1968) studied researched on the linkage effects of FDI on the Nigerian economy and submitted that the impacts were insignificant and that the broad linkage effects were less than the Chenery-Watanabe average (Chenery and Watanabe, 1958). Oseghale Amonkhienan and Oseghale Amonkhienan (1987) submitted a positive relationship between FDI and GDP while concluding that sustained inflow of FDI will boost Nigeria’s economic performance. Odozi (1995) researched the factors affecting FDI inflow into Nigeria in both the periods pre and post (SAP) structural adjustment program periods and submitted that the policies before the SAP discouraged FDI inflow. Ekpo (1995) submitted that inflation rate, real per capita income, political regime, debt service and credit rating were key factors elucidating the inconsistency of FDI flow and impact in Nigeria.
Din and Haider(2013) studied the impact of aid on the economic growth of the country. Ramsey Cass Koopman's growth model has been used. Results show that foreign aid has a positive impact on the economy but good governance plays an important role but external debt has a negative role and and is the reason for creating burden on the country Alan(2013) studied the impact of foreign aid on the economic growth of the country. Secondary data has been used where as government spending on education is the independent variable. Results conclude that the lack of management, poor planning and corruption are the reasons because of which aid is not being used
CHAPTER ONE: INTRODUCTION 1.1 Background to the Study The role of foreign aid in the growth process of developing countries has been an issue of intense debate. Foreign aid is an important issue given its implications for poverty reduction in developing countries. Previous empirical studies on foreign aid and economic growth generate mixed results. For example, Addison, Mavrotas and McGillivray (2005) find evidence for positive impact of foreign aid on growth; Abegaz (2005) find evidence for negative impact of foreign aid on growth, while AFDB (2005),AFDB (2004) find evidence to suggest that foreign aid has no impact on growth. It should be noted that, although Adelman (2000) concluded that foreign aid has positive effects, this conclusion applies only to economies in which it is combined with good fiscal, monetary, and trade policies.
ECONOMIC GROWTH The major objective of macroeconomic policies for every nation is to attain sustainable economic growth together with price stability. The importance given to price stability when conducting monetary policy amongst other things is to stimulate sustainable economic growth as well as strengthening the purchasing power of the local currency. The question of whether or not inflation is detrimental to economic growth has recently been a subject of strong argument to policy makers and macroeconomists. The bone of contention is that whether inflation is necessary for economic growth or it is harmful to economic growth. The effects of inflation on economic growth are more or less certainly biased towards that view that inflation is detrimental to the growth of an economy.
From various empirical studies that have been done, there seems to be different results on the impact of growth on poverty reduction. Generally speaking, these results can be classified into three views: Firstly, some views assume that growth is not sufficient for reducing poverty. According to World Bank (2014), economic growth is needed to reduce poverty, but rapid and high performance of growth in developing countries is not sufficient in fostering poverty reduction under 3 percent globally by 2030, without additional policies to support the poor. In every country but particularly in developing country, economic growth is more sufficient to encourage poverty reduction and broader prosperity if the scheme of growth becomes more labour intensive and if poor people can work productively. As a result of the labour productivity, the sectoral content of growth and its impact on job creation may reduce the poverty rate.
Few studies believe that Asian countries are largely benefitted by the foreign aid for economic growth and development. On the contrary, other argues that foreign aid inflows have a negative impact on the growth of Asian countries. According to Morrissey (2001), foreign aid can only contribute to economic growth through a number of mechanisms. He said that foreign aid can increase the capacity of import of technology or capital goods and can increase investment in human capital and physical goods. Further, it indirectly encourages investment or saving rates by promoting technical change and increases productivity of capital.
M. Ekanayake (2..) contends, the main role of foreign aid is to stimulate economic growth in order to supplement domestic sources of finance such as savings resulting in increased amounts of investment and capital stock. Most countries in Southern Africa have a big challenge when it comes to internal funding for development undertakings. Due to high population increases in Southern Africa, there is need for rapid economic development of which the countries are unable to cope and achieve on their own because of low savings and investments which is exacerbated by high population increases. Therefore foreign aid can help reduce the shortage of domestic saving and investments. Since most Southern African countries are developing, they need the assistance of foreign aid (from developed countries and financial institutions such as IMF and World Bank) in the form of financial and technical assistance.