Foreign Aid Effectiveness in the Education Sector: A Dynamic Panel Analysis

In the realm of development economics, foreign aid and economic development are interconnected concepts, both in theory and practice. Education, a fundamental human right, plays a pivotal role in shaping human capital and driving economic progress. With this in mind, the primary objective of this study is to explore the relationships between education aid and the various levels of schooling, namely primary, secondary, and tertiary, in developing countries. The effect of the primary, secondary, and tertiary level education aid of fifty developing countries with 19 years of panel data was investigated to determine the relationship with Primary Completion Rate, Secondary School Net Enrolment Rate, and Tertiary Gross Enrolment Rate, respectively. The study used the system GMM (One-step GMM and Two-step GMM). The findings suggest that a statistically significant relationship exists between education aid and various levels of education, and education aid effectively enhances the education outcome in developing countries. The findings also underline the importance of establishing sound economic foundations, addressing corruption, maintaining optimal Pupil-Teacher Ratio, and emphasizing female teachers. These factors collectively contribute to fostering an enabling environment for enhancing education outcomes in developing countries.