The effects of Aid on Foreign Direct Investment in Africa and other regions (Preliminary draft; please do not quote without authors’ permission)
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چکیده
We explore the effects of foreign aid on FDI in a large number of aid-recipient countries using data since the mid-1980s. We control for the various determinants of FDI and we specifically include the interplay of aid with social cohesion and the interplay of aid with human capital. The empirical results from dynamic GMM estimations indicate that the independent impact of aid on FDI is negative in sub-Saharan Africa (SSA) and Latin America (LAC) and positive in other regions. Aid in countries with high levels of human capital discourages FDI, implying that human capital and FDI are substitutes. The interplay of aid and social cohesion in SSA and LAC has an inverted-U relationship with FDI, implying diminishing returns to social cohesion in these two regions. On the other hand, the effects from the interplay of aid and social cohesion in other regions have a U shape, implying the presence of a threshold effect to social cohesion. Interestingly, once we control for human capital, aid, and social cohesion, we do not find strong evidence of a significant role of governance. We discuss the policy implications of these findings.
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تاریخ انتشار 2016