Foreign Aid-Economic Growth Nexus: A Systematic Literature Review

Abstract

The purpose of this study is to present a systematic literature review on the relationship between foreign aid and economic growth by examining 113 recent studies published between 2020 and 2025. The aim is to provide an updated, comprehensive understanding of how foreign aid affects economic development in recipient countries. The results classify the relationships into four broad categories: positive, negative, mixed and insignificant effects. The study shows that while a significant proportion of studies find a positive relationship between foreign aid and economic growth, many others report negative or mixed results. The effectiveness of foreign aid is shown to depend on contextual factors such as the quality of governance, institutional capacity and the targeting of aid. Countries with strong governance frameworks and effective aid management tend to have more positive outcomes, while weak institutions and poor aid management can exacerbate dependency and hinder growth. The study also highlights the importance of tailoring aid programmes to the specific needs of recipient countries, with a focus on long-term capacity building and sustainable development. The findings have important policy implications for donor agencies and policymakers, calling for a more strategic, context-specific approach to aid allocation and implementation. This research contributes to the ongoing discourse on the role of foreign aid in promoting economic growth and offers recommendations for improving aid effectiveness in the context of the global development challenges of the 21st century.