Arbeitspapier

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

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.

Language: Englisch

Bibliographic citation: Series: Working Paper ; No. 03.04

Classification: Wirtschaft
Foreign Aid
International Investment; Long-term Capital Movements
Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
International Linkages to Development; Role of International Organizations

Subject: Aid
Foreign Direct Investment
Institutions
Auslandsinvestition
Entwicklungshilfe
Investitionspolitik
Subvention
Schätzung
Schwellenländer
Entwicklungsländer
Politische Instabilität

Event: Geistige Schöpfung

(who): Harms, Philipp
Lutz, Matthias

Event: Veröffentlichung

(who): Swiss National Bank, Study Center Gerzensee

(where): Gerzensee

(when): 2003

Handle: http://hdl.handle.net/10419/128019

Last update: 10.03.2025, 11:45 AM CET

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Object type

Arbeitspapier

Associated

Harms, Philipp
Lutz, Matthias
Swiss National Bank, Study Center Gerzensee

Time of origin

2003

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

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