The Impact of Official Development Assistance on Agricultural Growth and Agricultural Imports in Developing Countries
Type of DegreeMaster's Thesis
Agricultural Economics and Rural Sociology
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The economies of developing countries revolve primarily around agriculture. For the developing countries to catch up with the industrialized world, the starting point is to invest in agriculture. Due to capital constraints, it takes longer for the developing countries to reach the development stage without foreign assistance. Thus, rich countries help the poor ones and the assistance come in the form of foreign aid—mostly official development assistance. However, farm organizations in donor countries are concerned about foreign aid to agriculture sector in developing countries. They believe agricultural output growth in developing countries harms donor countries’ farm exports. To evaluate the claim, an equilibrium displacement type model (EDM) is developed to explore the links between agricultural growth, agricultural imports, savings, and official development assistance (ODA). Parameters of the model are estimated using a time-series cross-section data set for 46 developing countries. A fixed effect estimator is used to control for unobserved heterogeneity across the countries, and instrumental variables are used to control for endogeneity bias. Estimation results suggest a positive relationship between ODA and agricultural imports. Breaking down ODA by sector level, results suggest ODA directed at the agricultural sector considerably increases agricultural imports. However, adding remittance into the agricultural imports equation significantly reduced the effect of agricultural ODA on agricultural imports.