Exploring Causality Between Foreign Aid and Economic Growth: A Cross-Country Analysis

Introduction: Foreign aid plays a crucial role in global efforts to alleviate poverty and promote economic growth. Aim: This research explores the causal link between foreign aid and economic growth across six Western Balkan countries, utilizing time series data spanning from 1995 to 2022. Method: The study employs methodologies such as the Granger causality test and various empirical unit root tests. Findings: The findings reveal a statistically significant causal relationship, with foreign aid emerging as a strong predictor of economic growth only in Serbia, while in Bosnia and Herzegovina, the reverse was observed. These outcomes underscore the existence of notable disparities and imbalances in the interplay between foreign aid and economic growth across the region. Conclusion: The reduction in foreign aid to the Western Balkans underscores the region's growing economic independence and the impact of shifting geopolitical priorities. Originality and value: This study makes a distinctive contribution to the body of literature by concentrating on the Western Balkans, a region that isn't as often studied in connection to the relationship between foreign aid and economic growth.