6. Conclusion
This paper has contributed to the recent empirical literature on impact of foreign aid on income inequality.
We tested the impact of sectoral aid (social sector, economic sector, production sector and multi sector) on income inequality using the GMM-SYS approach to dynamic panel estimator for a sample of aid recipient countries over the period 1995–2009.
This method is powerful in solving the endogeneity problem and produced unbiased
estimation results.
This study support the findings pointed by Mavrotas (2005), Mavrotas and Ouattara (2006a)
that different category of aid exerted a different macroeconomic and social effects on the recipient economy.
It depends on the category and the purpose of giving that aid.
Our findings suggest that aid to economic sector plays significant role in reducing income inequality in aid recipient countries.
Aid to this sector includes of aid to transportation and storage, communications, energy, banking and financial services, business and other services.
These sectors are main sectors that generate economic growth in a country.
Thus, aid to this sector will increase economic efficiency, total productivity, economic growth and reduce income inequality in the recipient economies.
In contrast, aid to multi sector seems to increase income inequality.
This type of aid includes aid goes to the general environment protection, and other multi sectors which is more benefited of the top segment of the society.
Thus, study on the impact of foreign aid on income inequality using disaggregated aid figures provided more appropriate and important findings rather than aggregate aid figures.
Hopefully these findings can be a benchmark for policy makers to design more appropriate and better policy to make aid more effective and achieved its goals.