5. Results and Discussions
The estimated results of the impact of sectoral foreign aid on income inequality are summarized in Table 1.
Before discussing the results on the estimated coefficients it is crucial to analyze our diagnostic tests. The first
test concerns the validity of the instruments. The Hansen p-value is greater than 5 percent significance level,
which is 0.749. It implies that we failed to reject the null hypothesis of no over-identifying restrictions. The
second test concerns the question of 1
st
and 2
nd
order serial correlation. The p-values of the Arellano and Bond
test for AR (1) is 0.042 which are less than 5 percent for shows that the residuals are correlated at 1
order
conditions. However the residuals are not correlated at 2
nd
order conditions when p-values of the Arellano and
Bond test for AR (2) are greater than 5 percent significance level, which is 0.296. Thus both Hansen and
Arrelano-Bond statistics confirm that the instruments used have no-over-identifying restriction and residuals are
independent.