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Research background: Foreign aid flows to Africa mostly the Low-Income Countries (LICs) have increased drastically since 2000. Increasing aid flows are expected to stimulate economic growth that can release resources towards enabling LICs to reduce aid dependency.

The enormous volume of literature has widely discussed the aid–growth correlation while identification of their causal relationship remains elusive and mixed. The main objective of this article is to investigate whether aid sources matter for explaining the aid–growth causal nexus among African low‐income countries (LICs) during 2000–2017. A novel feature of this study is that it takes into account three proxies of aid (i.e. total aid [TA], traditional donors' aid [TDA], non‐TDA [NTDA]), unlike most studies that use aid solely from TDs (TDA). It employs a dynamic panel causality model in a multivariate setting using investment and consumption as key conditioning variables to account for omitted variable bias. The study found a short‐run bidirectional causality between aid and growth for TA and TDA proxies but not for NTDA in neither direction. In the long‐run, the study found unidirectional causality from growth to aid for TA and NTDA aid but not for TDA. The overall result shows that the aid–growth causality among African LICs depends on the aid proxies used and the time horizon assessed. A key policy implication is that donors' aid allocation decisions in LICs should take into account the specific causal relationship between aid and growth by aid sources and time periods. [ABSTRACT FROM AUTHOR]

This article aims to shed some insights into the ongoing debate on the aid-growth nexus by examining whether sources of aid matter in explaining aid effectiveness. In doing so, we consider three main proxies for bilateral aid based on three sources of aid such as Total Aid (TA); Traditional Donors aid (TDA) and Non-Traditional Donors aid (NTDA) as independent variables in a dynamic panel growth model within a system GMM framework. The study uses a panel dataset from 25 Low-Income Countries (LICs) in Africa over the period 2000–2017. The main findings show that the impact of aid on economic growth appears to be negative and significant for TA and TDA proxies, while it is positive but insignificant when the aid proxy is NTDA. A relatively larger share of TA and TDA disbursement away from the direct growth-enhancing productive sectors towards the unproductive sectors seems to have contributed to their strong negative impact on growth. The key policy implication is that governments in LICs in Africa and donors should work in collaboration to design effective ways to ensure that TDA should target the direct growth-enhancing sectors. [ABSTRACT FROM AUTHOR]