Foreign Assistance Effectiveness: The Moderating Role of Women Empowerment

ABSTRACT This is a study of how foreign aid affects economic growth in aid‐receiving countries. Contrary to theoretical literature, the empirical finding of a negative impact of foreign aid on macroeconomic performance serves as a central driving force behind our study. Our theoretical framework suggests that women empowerment is an essential component that can considerably regulate the aid‐growth relationship. Using a global sample of 108 aid‐receiving countries and a GMM econometric approach that ensures the accuracy and reliability of results by addressing endogeneity concerns, we find evidence that advancement in women empowerment enhances the efficacy of aid in fostering economic growth, and the presence of gender inequality not only diminishes this effect but also leads to a negative relationship between aid and growth. The policy implications of the study suggest that aligning policies targeting foreign aid reception with those aimed at improving women empowerment and reducing gender inequality is vital to unlocking the advantages of foreign assistance in aid‐receiving countries. By demonstrating that women's empowerment acts as a catalyst in the aid‐growth relationship, this study introduces a novel perspective in the aid effectiveness debate.