The Impact of Foreign Aid on Economic Growth: Project and Program Aid in Indonesia

Kurniawan,Agus Riyanto (2014). The Impact of Foreign Aid on Economic Growth: Project and Program Aid in Indonesia Master's Thesis, School of Economics, The University of Queensland.

       
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Author Kurniawan,Agus Riyanto
Thesis Title The Impact of Foreign Aid on Economic Growth: Project and Program Aid in Indonesia
School, Centre or Institute School of Economics
Institution The University of Queensland
Publication date 2014-11-11
Thesis type Master's Thesis
Supervisor Bruce Littleboy
Total pages 82
Language eng
Subjects 14 Economics
Formatted abstract
Foreign aid of various types has been widely used as external financing in most developing countries. However there is no consensus whether aid promotes or hampers economic growth. Indonesia has utilized foreign aid for a long time, where program and project aid have become the most dominant aid types. However, no research has been conducted in Indonesia to estimate the relative effectiveness of these two types of aid on economic growth. This study is intended to analyse the effectiveness of project and program aid on economic growth in Indonesia over the period from 1970 to 2013. Characteristics of program and project aid in Indonesia are identified. The literature review explores cross-country and country-specific studies. The study used the Ordinary Least Squares (OLS) method to estimate the regression model. Stationarity tests and Johansen Cointegration test were also applied to address the data stationarity issues. All the classical assumption tests such as normality, multicollinearity, heteroskedasticity and autocorrelation were taken to obtain the Best Linear Unbiased Estimator (BLUE) model. The findings show that program aid has negative impact on economic growth in Indonesia. There is no significant impact of project aid on growth, even though shows a positive sign. Therefore, if the Indonesian government continues to use foreign aid to finance its budget deficit, it might be more effective if the government reduced the proportion of program aid. However, under special circumstances such as economic crisis, the government may beneficially increase the amount of program aid for stabilization purposes. Furthermore, the government may continue to utilize project aid with some improvements in place.
Keyword Foreign aid
Program aid
Project aid
Economic growth
Aid effectiveness

Document type: Thesis
Collection: UQ Theses (non-RHD) - UQ staff and students only
 
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