Aid, Governance, and Private Foreign Investment: Some Puzzling Findings and a Possible Explanation

Arbeitspapier

Does official aid pave the road for private foreign investment or does it suffocate private initiative by diverting resources towards unproductive activities? In this paper we explore this question using data for a large number of developing and emerging economies. Controlling for countries? institutional environment, we find that, evaluated at the mean, the marginal effect of aid on private foreign investment is close to zero. Surprisingly, however, the effect is strictly positive for countries in which private agents face a substantial regulatory burden. After testing the robustness of this result, we offer a theoretical model that is able to rationalize our puzzling observation.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: HWWA Discussion Paper ; No. 246

Classification and Topics

• Classification: Wirtschaft ; International Investment; Long-term Capital Movements ; Foreign Aid ; International Linkages to Development; Role of International Organizations ; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
• Subject: Aid ; Foreign Direct Investment ; Institutions ; Direktinvestition ; Entwicklungshilfe ; Investitionspolitik ; Subvention ; Politische Stabilität ; Schätzung ; Aufstrebende Märkte ; Entwicklungsländer

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Harms, Philipp ; Lutz, Matthias
• Event: Veröffentlichung
• (who): Hamburg Institute of International Economics (HWWA)
• (where): Hamburg
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/19218
• Last update: 10.03.2025, 11:42 AM CET