The Impact of Foreign Aid on Economic Growth in
Cambodia: A Co-integration Approach
Heng Hokmeng
Paññāsāstra University of Cambodia, Phnom Penh, Cambodia
Pahlaj Moolio
Paññāsāstra University of Cambodia, Phnom Penh, Cambodia
Abstract
The purpose of foreign aid is to stimulate economic
growth in aid-recipient countries; yet, literature
review reveals mixed results: inconclusive or often
controversial findings. By using time series annual data
from 1991 to 2012, and applying Johansen’s multivariate
co-integration test with vector error correction model (VECM)
and the innovative accounting (variance decomposition
and impulse response function analysis) techniques, this
study aims to examine the long run and short run impact
of foreign aid on Cambodia’s aid-dependent economy; two
other variables such as inflation, and government
consumption expenditure are also included in the model.
The results of the model show that foreign aid has a
significantly positive impact on economic growth in the
long run in Cambodia. In addition, foreign aid also has
an influence on inflation and may cause it to rise in
the short run and in the long run. The model also
confirms that foreign aid and inflation positively
affect government expenditure in the long run.
Keywords: Foreign Aid, Economic Growth,
Johansen’s Multivariate Co-integration, Vector Error
Correction Model, Cambodia.
JEL Classification: L26
