Is Aid Good for the Poor in Sub-Saharan Africa?

We contribute to the aid-poverty literature in Sub-Saharan Africa in two fundamental respects. First, we sidestep the controversial aid-growth-poverty relationship by analysing the direct impacts of aid on poverty in Sub-Saharan Africa. Second, in line with previous studies, we first analysed the impact of aid on poverty headcount, poverty gap, and poverty gap squared. We complemented this analysis with an analysis of the direct impact of aid on the incomes of the poor, followed by an analysis of aid on inequality. Such an approach allowed us to draw nuanced conclusions about how effective foreign aid is in alleviating not just overall poverty, poverty gap, and poverty severity but also deeper issues related to income disparity among impoverished populations in the Sub-Saharan African (SSA) region. Relying on the system GMM estimator that is robust to endogeneity, results show that both overall aid and multilateral aid have a statistically significant impact on reducing poverty in Sub-Saharan Africa. However, results show that the impact of bilateral aid on the poverty rate, poverty gap, and poverty severity is inconclusive. Results also show that while both overall aid and multilateral aid raise the incomes of the poor and reduce inequality, bilateral aid marginally reduces income disparity but does not increase the incomes of the poor. The policy implication of our findings is that policymakers must adopt a nuanced approach that leverages successful implementation of overall and multi-lateral aid while ensuring targeted interventions directly benefit those living in poverty.