The Role of Foreign Aid on Economic Growth in Ethiopia

Abstract

The provision of foreign aid began after the Second World War, when the US marshal plan was announced in 1947 and involved the provision of funds for the reconstruction of war torn Europe. The economic objectives of foreign aid are to induce high growth rates in Less Developing Countries which in turn will generate additional domestic savings and investment. However, there is much dispute as to whether development assistance to poor countries has been successful in achieving these objectives. In Ethiopia, an inflow of external resources such as loans and grants has started in the mid of 1950, the year in which the relationship between the United States and Ethiopia reached a higher level. As Ethiopia’s economy is characterized by a massive inflow of foreign capital, it is imperative to review studies conducted on this area. This paper tries to assess the role of foreign aid on economic growth in Ethiopia