Foreign Aid Agricultural Sector Development and Poverty Reduction in Sub-Saharan Africa

Abstract

This research investigated the role of agricultural sector development in the relationship between foreign aid and poverty reduction, utilising panel data from 40 sub-Saharan African countries. The study spanned from 2000 to 2022, and System Generalized Method of Moments (GMM) was employed for the statistical analysis. This method addresses potential endogeneity issues arising from reverse causality and omitted variable bias by using instrumental variables. The study revealed that foreign aid had a poverty reducing effect depending on the measure of aid. The study further revealed that bilateral aid, technical aid and grant aid had a positive and significant effect on poverty reduction while multilateral aid failed to contribute to poverty reduction in the SSA region during the period under study and this can be attributed to aid conditionalities. Additionally, the findings indicated a positive and significant influence of agricultural sector development on reducing poverty. Moreover, results from the third objective showed that countries that engage in agricultural activities when they receive aid and channel this aid towards the development of this sector, its impact on poverty reduction is higher. In light of this, the study recommends that policymakers in Sub-Saharan African (SSA) countries prioritize the alignment of foreign aid programs with their national agricultural development strategies. This can be achieved by developing comprehensive agricultural sector plans that clearly articulate priority areas for investment, such as infrastructure development, technology adoption, and market access.