Business & Management Studies

Abstract

This study delves into the impact of foreign aid on economic development and poverty reduction in Zimbabwe, exploring their causal relationship. Despite extensive research on foreign aid's potential to drive development, there is a lack of comprehensive understanding of its impact on economic growth in developing countries. This knowledge gap necessitates a rigorous examination of the relationship between foreign aid and expansion in developing nations. The study hypothesizes that foreign aid has no significant impact on economic development and poverty reduction in Zimbabwe. Using Box-Jenkins ARIMA methodology, the study models and forecasts the foreign aid-economic development nexus and poverty reduction in Zimbabwe. The research covers a period of 1961-2021 and provides forecasts till 2031, offering a long-term perspective on the dynamics of aid, economic development, and poverty reduction. The findings suggest that foreign aid has a minimal effect on poverty reduction, which in turn hinders economic development. Adjusting for macroeconomic factors like inflation, the study reveals aid's inefficiency in reducing poverty. The study identifies long-term negative links between economic progress, foreign assistance inflows, and poverty alleviation. Forecasting foreign aid inflows from 2022 to 2031 using ARIMA indicates a modest increase. The results remain consistent across poverty indicators. The study concludes that increased foreign aid does not guarantee improved economic development or poverty reduction in Zimbabwe. It stresses the importance of effective macroeconomic policies and institutional functioning for sustained poverty alleviation. The study contributes to the body of knowledge by providing nuanced insights into the complex relationships between foreign aid, economic development, and poverty reduction in Zimbabwe. It highlights the need for context-specific solutions and effective policy interventions. The findings of this study are crucial for policymakers and stakeholders in Zimbabwe and other developing countries to reassess their approach to foreign aid and its role in achieving economic development and poverty reduction.