Sectoral Analysis of the Impact of Foreign Aid on Economic Growth in Ethiopia

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The study investigates the effects of foreign aid on Ethiopia's economic growth from 1981 to 2012, utilizing advanced statistical methods like multivariate Vector auto regression analysis. Findings indicate that while foreign aid significantly boosts the educational sector's GDP in the long term, its impact on overall real GDP, agriculture, and health sectors remains positive yet insignificant. The research highlights a bi-directional causal relationship between educational GDP and foreign aid, suggesting that aid is largely ineffective in driving economic development in other sectors. It emphasizes the need for Ethiopia to enhance its domestic revenue capacity to better support economic growth.