An Empirical Investigation and Analysis of Foreign Aid- Economic Growth Nexus in Sierra Leone (1980-2023)

Sierra Leone, being a small and poor developing country, colossally relies on foreign aid, cardinally as a result of infinitesimal Gross Domestic Product (GDP) and improper resource management. The study elects to investigate and analyse foreign aid-economic growth nexus in Sierra Leone for the period 1980-2023. The study uses time series secondary data obtained from various sources such as the International Financial Statistics (IFS), Central Bank of Sierra Leone (CBSL), Ministry of Finance (MoF), World Development Indicators (WDI) and Sierra Leone Central Statistics Office (SLCSO). Various macroeconomic variables including investment to GDP ratio, exchange rate, terms of trade, inflation and public debt were specified in the model used in this study. A time series growth model was estimated using ordinary least squares (OLS) and Newey-West estimation techniques. The Hendry’s general-to-specific method was used to arrive at the estimated model. Stationarity test, using Augmented Dickey-Fullah Generalised Least Squares (ADF-GLS) and the Perron Vogelsang tests for unit root, was carried out for all variables in the model to avoid spurious regression results which are common with time series analysis of macroeconomic data using OLS technique. The study empirically reveals a positive and significant impact on economic growth in Sierra Leone for the period being investigated. The study, therefore, provides key recommendations consistent with the findings, among which, is the need for policymakers to exercise tremendous efforts to further attract foreign aid to Sierra Leone in order to boost output and economic growth, ensuring that such resources are well managed.