The Role of Development Aid in Agriculture in the Common Market for Eastern and Southern Africa: A Panel Vector Autoregression Analysis

This paper assessed the impact of foreign aid on agricultural productivity and growth in the Common Market for Eastern and Southern Africa (COMESA), using panel vector autoregressive methods. The results show a significant unidirectional causality from agricultural growth to foreign aid and thus confirming the theoretical dispositions of the developmental role of foreign aid. However, instead of complementing domestic resources in this regard, the results showed that foreign aid in the sector substitutes government financing, which effectively reduces its effectiveness. A mismatch in government resources and aid allocations to a sub-sector erodes the synergy that should typically exist between donor aid and government expenditure in a sector. A policy shift towards Result-Based (Aid on Delivery) approaches in aid disbursements will be critical to eliminating fungible resources. Misalignment of aid allocations that are inconsistent with the relative importance of subsectors in the sectoral development goals further undermines the potency of aid. A better understanding of the contribution of the various sub-sectors to the overall growth of the agriculture sector will be crucial for equitable resource allocation and enhanced aid effectiveness. Moreover, the higher impact of domestic resources compared to foreign aid calls for policies to increase domestic resource mobilization and a broader focus on reducing aid dependency.