Foreign Aid and Economic Infrastructure in the Common Market for East and Southern Africa (COMESA)

Available literature has shown that infrastructure development promotes growth. However, very few studies have explored indirectly the role various infrastructure financing arrangements play in this process. This paper contributes to the literature in this regard by analysing the impact of foreign aid on infrastructure to infer its effect on economic growth in the Common Market for East and Southern Africa. Using the Blundell-Bond (BB) system generalized methods of moments, the results show that foreign aid has a net negative effect on infrastructure development mainly because of corruption which mostly compromises the utilization of its grants. Overall, the results show the potential that loans have in turning around the infrastructure deficit in the region, particularly if corruption is effectively addressed in all the COMESA countries. The results further show a positive and significant impact of domestic resources (savings) on infrastructure development. This implies that exploring other avenues of revenue for closing the infrastructure gaps remains the best policy option for fast-tracking infrastructure development augmented with foreign aid in COMESA countries.