Can Development Aid Help Promote Foreign Direct Investment? Evidence from Central Asia

Annageldy Arazmuradov

18 citations0/0 files storedEconomic Affairs

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International Development and Aid International Business and FDI Global trade and economics

Abstract

Abstract There is a continuing debate on the effectiveness of development aid. One less obvious angle on this issue is the question of the likely impact of aid on foreign direct investment (FDI). This paper tests whether aid had any impact on incomingFDIin CentralAsian economies during the period 1993–2008. A simple panel model suggests that (a) aid had a moderate complementary effect on inwardFDI, (b) there was a crowding‐out effect such that domestic investment reducedFDIstocks, (c) natural resources were a key attraction for private capital, and (d) increases in development aid offset the crowding‐out effect of domestic capital onFDI. It is argued that donors should target aid to enhance the climate for inward investment.

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References

2003Testing for unit roots in heterogeneous panels 2002Unit root tests in panel data: asymptotic and finite-sample properties 2004Multinational Firms in the World Economy 2002Global Foreign Direct Investment Flows: The Role of Governance Infrastructure 2004On the Empirics of Foreign Aid and Growth 2000Foreign aid and rent-seeking 2004Ending Africa's Poverty Trap 2007The Marginal Product of Capital

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