Foreign Aid, Agricultural Productivity, and Exchange Rate Dynamics Panel Evidence from West Africa, 2001–2021

Abstract

This study examines the impact of foreign agricultural aid on agricultural productivity and its subsequent effects on exchange rates in 16 West African developing countries over the period 2001–2021. While prior work has analyzed the effects of agricultural aid on productivity and poverty alleviation, the consequences for exchange rates have not been adequately examined. Using panel data with fixed effects regression and quantile regression techniques, the study assesses both the direct and indirect effects of agricultural aid. The findings indicate that foreign aid has a statistically significant positive impact on agricultural productivity: under the fixed effects model, a US$1 million increase in aid corresponds to a 0.11% increase in productivity. Quantile regression further reveals that aid effectiveness varies across the productivity distribution, with the largest coefficients observed at the lower quantiles (Q = 0.10 and Q = 0.25) and diminishing marginal effects at higher productivity levels. By contrast, foreign aid has a negative but statistically insignificant impact on the exchange rate, suggesting that while agricultural aid boosts productivity, its exchange rate effects in this sample are limited. The estimates are conditional correlations and should not be interpreted as causal; a lagged-aid specification is reported as a robustness check. The paper contributes to the literature by jointly examining aid–productivity and aid–exchange rate channels in a unified empirical framework and recommends that aid be carefully targeted to drive lasting improvements in the agricultural sector and overall economic stability.