The effectiveness of foreign aid, specifically, the role it plays in promoting growth in developing countries, is one of the most debated issues in the field of economics. Despite the enormous resources channeled to developing countries over the past decades, only limited tangible results can be observed. The literature on aid effectiveness is vast. Yet, the results are inconclusive. The purpose of this paper is to examine the impact of economic aid provided by the USA on Egyptian economic growth before the Egyptian Revolution in 2011, more precisely, Mubarak’s era.
The paper uses a vector autoregressive (VAR) model and Granger causality test to answer the question of whether the US Agency for International Development (USAID) has been conductive to growth in Egypt over the period of 1981 to 2010.
The results reveal that USAID has no impact on the Egyptian economic growth.
The recommendations put forward by this paper are measures that Egyptian policymakers can undertake to increase aid effectiveness. These measures include the reduction of corruption, more active participation in delivering aid, greater accountability for aid outcomes and coordination of the activities of aid agencies.
