Abstract
This study investigated whether sector-specific foreign aid contributes to industrial development in Africa and under what conditions it becomes effective. The analysis assessed the direct, complementary, and moderating effects of aid, using manufacturing value added as a share of gross domestic product as the principal indicator of industrialisation. Drawing on panel data for 47 African countries from 2002 to 2023, the study employed the cross-sectionally augmented autoregressive distributed lag estimator to account for both short- and long-run dynamics as well as cross-sectional dependence. The empirical results reveal that the direct effects of sectoral aid on industrialisation are modest and heterogeneous. Most sectoral coefficients are statistically insignificant, indicating that aid inflows alone do not generate sustained manufacturing growth. The only significant direct effect appears in the infrastructure model, where a 1% increase in infrastructure aid is associated with a 0.075% short-run decline in manufacturing value added, reflecting temporary implementation disruptions before stabilisation occurs. Regarding complementary effects, tests for cross-sector interaction showed that cross-sector aid combinations do not produce statistically significant long-run synergy. Only two short-run interactions are statistically significant: Agriculture*Infrastructure, which yields an estimated −0.034% short-run effect per 1% joint increase (reflecting implementation-phase disruption rather than synergy), and Industry*Energy, which generates an estimated +0.062% short-run effect per 1% joint increase (indicating temporary operational gains rather than sustainable productivity improvements). Finally, the moderation analysis shows that aid effectiveness is conditional rather than uniform. Government effectiveness, human capital, and financial development significantly enhance the impact of sectoral aid, while rule of law and inflation exert no statistically meaningful influence. These findings indicate that the transformative capacity of aid depends more on institutional capability, human-capital strength, and financial depth than on aid volume or sectoral targeting alone. Foreign aid can, however, play a catalytic role when delivered through sequenced, spatially aligned, and institutionally supported programmes rather than parallel, stand-alone interventions. In essence, sectoral aid does not drive industrialisation unless countries possess the institutional capacity, skills, and financial systems to absorb it, and unless aid projects are deliberately coordinated to reinforce each other instead of operating in silos.