Abstract

Nowadays there is a general skepticism, uncertainty, and misapprehension regarding China's foreign aid to developing countries, and very few studies have tried to answer the issue of whether China's foreign aid fails to foster economic growth in the recipient countries. Therefore, this study intend to examine the effects of Chinese foreign aid (disaggregated into Project Aid and Development Loan Aid) on gross domestic savings, gross domestic investment, and economic growth rate in African countries from 2000 to 2014 after a 1-year lag. To analyze the effects, multivariate regression analysis with fixed effect, random effect, and pooled OLS regression estimations were conducted. The finding of this study supports the theoretical hypothesis of a positive relationship between foreign aid, saving, investment, and economic growth rate, through documenting project aid and development loan aid categories impact positively on gross domestic saving and gross domestic investment. Development loan aid also predicted the economic growth rate. Therefore, these results predicted that project aid and development loan aid categories pour into African countries accelerated economic growth. This research also proposed that it would be better to identify the forms of aid flows when obtaining aid from the donor countries. Therefore, it attempts to contribute to the scholars and policymakers by identifying the effectiveness of specific aid components that serve as the key aid flow tool for donor countries.

Key words: African countries, Chinese foreign aid, economic growth, investment, saving.