Foreign Aid and Financial Development on Poverty in Africa: New Perspectives from the MMQR Approach

This study examines how financial development influences the impact of foreign aid on poverty reduction across 43 African countries between 2000 and 2019. Given the uneven distribution of the data, the analysis utilizes the innovative Method of Moments Quantile Regression (MMQR) technique. The results indicate that foreign aid has a positive impact on poverty in Africa. Importantly, financial development also has a positive influence on poverty. However, the results demonstrate a negative interaction effect, which implies that the combination of aid and financial development is associated with poverty reduction. Future research can improve on the findings from this study by addressing limitations in data disaggregation and cross-sectional coverage, as well as by investigating other methodological techniques and transmission mechanisms. This research contributes to the existing literature by exploring the moderating role of financial development in the aid-poverty relationship, using a multidimensional poverty measure. It also applies the advanced MMQR technique to offer a more in-depth analysis across the poverty distribution.

JEL Classification F35, O16, I32, C32