Official development assistance and economic growth: a revisited analysis in a transition economy

Purpose This study investigates the short-term and long-term effects of official development assistance (ODA) on Vietnam's economic growth (EG). Design/methodology/approach This study employs an Autoregressive Distributed Lag (ARDL) model, which was developed by Pesaran et al. (2001). The data used in this study consist of annual series of EG, ODA, foreign direct investment (FDI), gross savings on GDP, institutional quality index and financial development (FD) index of Vietnam for the period from 1986 to 2022. Findings The empirical results obtained from the ARDL bounds testing model confirm that ODA has a significantly negative effect on the EG of Vietnam in the short run, but it has a significantly positive impact on the growth in the long run. Specifically, in the short run, a 1% increase in ODA is contemporaneously associated with a 0.070% decrease in Vietnam's EG. However, in the long run, a 1% increase in ODA leads to a 0.071% increase in EG. Practical implications To maximize the long-term benefits of ODA, Vietnamese policymakers should continue prioritizing ODA allocation toward foundational sectors, particularly infrastructure development, human capital, technology and digital transformation. These investments provide the necessary platform for innovation and efficiency, essential elements of endogenous growth. Originality/value By focusing on Vietnam, a transition economy undergoing rapid development since the Doi Moi, the study provides unique insights into the varied effects of ODA on EG in the short term and long term.