There is no consensus on aid effectiveness and the resulting policy recommendations have been conflicting. Foreign aid to developing countries is a subject of heated debate among politicians, economists, and development specialists. Over the past 50 years Kenya has received several billions of foreign aid, the equivalent of several Marshall Plans. Some of this has been extremely useful: Treatments for HIV/AIDs, food to prevent starvation, and support for immunization programs. A large amount of the literature on foreign aid on economic development in Kenya is based on cross-country analysis and therefore simply yields some patterns that hold on average. The goal of this paper is to evaluate the role of World Bank aid in economic development in Kenya. We find that World Bank aid has strong beneficial effects on per capita income in Kenya. We established a very strong statistical association between sound economic policies and the performance of the World Bank aid in Kenya in our period of study. The study has presented ample evidence that with sound track record of macroeconomic policy management that is by keeping inflation modest, prudent fiscal policy and good financial policy World Bank aid can spur economic growth. The implication for policy is that in order for Kenya to foster and sustain growth, closer attention should be given to increase of World Bank aid, stable macroeconomic stability and sectors where the aid is directed.
Foreign aid, Official Development aid, inflation, public expenditure, economic growth
