Journal of Economics and Development Studies

The Effect of Foreign Aid on the Economic Growth of Bangladesh
Basharat Hossain

Abstract
Bangladesh is a recipient of foreign aid since its independence in 1971 and receives about $56.5 billion till 2012. This paper estimates 33 years data on foreign aid for 1980-2012 periods and analyzes the effects of foreign aid on the economic growth of Bangladesh. To examine the effects of aid more precisely, this study estimates eight separate models including three for the last three decades (1980-1990, 1991- 2001, 2002-2012), four for the four different government period namely, Military government (1982-1990), BNP (Bangladesh Nationalist Party) government (1991- 1995, 2002-2006) , BAL (Bangladesh Awami League) government (1996-2001, 2009- 2012) and the Whole Democratic government period (1991-2012) and one for the entire period (1980-2012). This research finds that, foreign aid has positive effect on the economic growth of Bangladesh and it is statistically significant in two models out of eight models. This paper also reveals that the aid generates decreasing returns in Bangladesh because of capacity constraint of Bangladeshi institutions to utilize the foreign aid effectively. This finding is consistent with previous findings of different researches.

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