Gender differential in economic participation, foreign aid and productivity: Pathway to broad-based growth

Abstract

Gender inequality and poverty reduction are critical challenges in developing economies, particularly in the Southern African Development Community (SADC). This paper investigates the effect of gender differential in economic participation and foreign aid on productivity, specifically addressing three objectives: the efficacy of the medicine model of aid on productivity, the long-run effects, and the impact of aid shocks. Using panel Fully Modified Ordinary Least Squares (FMOLS), Dynamic Ordinary Least Squares (DOLS), and Augmented Mean Group (AMG) estimators, the study examines the long-run impact. The Panel Vector Error Correction Model (PVECM) is employed to analyse the effect of aid shocks. For robustness checks, employment indicators are substituted for economic participation metrics. Empirical findings from the baseline model affirm the medicine model's proposition regarding the implications of aid on the SADC but reveal that aid has a negative coefficient in its ordinary form. The extended model demonstrates a significant and long-run negative impact of foreign aid on productivity. However, when considering the interactive effects, aid combined with economic participation positively influences productivity. Notably, the interaction of foreign aid and female economic participation significantly enhances productivity more than aggregate or male economic participation alone. Additionally, aid shocks negatively affect male economic participation more than the aggregate, with female economic participation being the least impacted. The study underlines the importance of prioritising female economic participation in aid programs to promote broad-based growth in the SADC region. The study recommends that aid agencies focus resources on projects that enhance female economic participation and meticulously evaluate project outcomes upon completion.