Foreign aid towards accelerated economic growth in Africa: the role of independent central banks, political institutions and monetary integration

We explore the impact of various dimensions of foreign aid and central bank independence (CBI) on economic growth in Africa. The aim is to highlight which types of aid and central bank reforms will be most beneficial for Africa. The study also examines the impact of monetary integration on aid and CBI's effectiveness. We achieve these using two stage GMM and error correction two stage least squares estimators with data spanning 1970-2017. We find that, aside economic, infrastructure and services aid, other forms of aid had a direct negative impact on economic growth. Goal, personal, instrument and financial independence did not have any significant impact on economic growth. CBI does not enhance the impact of foreign aid on economic growth except in the presence of high levels of political institutional quality. Financial independence had the strongest impact on enhancing aid effectiveness. Foreign aid has a stronger impact in fixed exchange regimes. CBI impacts economic growth more in the non-CFA Zone, reflecting the role of flexible exchange regimes in improving CBI effectiveness.