Foreign Aid and Social, Economic, and Environmental Sustainability in Sub‐Saharan Africa: Does Colonial Power Matter?

Abstract

ABSTRACT Despite receiving a significant amount of foreign aid, the economies of the Sub‐Saharan African (SSA) countries are characterized by a high unemployment rate, poor health status, and high levels of poverty. Based on the above background, this study examined the impact of foreign aid on the three pillars of sustainable development (social, economic, and environmental). The influence of colonial power on the effectiveness of foreign aid was also considered. The study covered 36 SSA countries for the period 2006–2021 and utilized the two‐step system GMM for the analysis. The study found that foreign aid has a significant positive impact on social and environmental sustainability, but a significant negative effect on economic sustainability. It indicates the need for increased aid flow to the social and environmental sectors. The study also found that the United Kingdom and other colonial powers have a significant positive influence on the foreign aid‐sustainable development nexus, while France as a colonial power exhibited a negative influence. It implies that France's aid to SSA is not for a genuine purpose. The study recommends policies that will attract more foreign aid to the social and environmental sectors, as well as mandatory scrutiny of all aid agencies to identify genuine ones.