Impacts of Foreign Aid to Melanesia

This paper investigates aid effectiveness in Melanesia, a region consisting of Fiji, Papua New Guinea, the Solomon Islands, Vanuatu and New Caledonia. These countries are of great interest since they have not performed well despite being rich in resources and receiving large amounts of foreign aid. The paper examines the impact of foreign aid on agricultural growth and overall economic growth in Melanesia. The impact on agricultural growth is important since the majority of people in Melanesia live in rural areas, reliant on agriculture for their livelihoods. Using the econometric analysis of data for the period 1980 to 2001, results provide no evidence that foreign aid has impacted on the agricultural sector. However, the paper does find evidence that foreign aid has impacted favourably on economic growth. A number of explanations and policy recommendations are provided.