IDEAS home Printed from https://ideas.repec.org/a/bla/ecaffa/v35y2015i1p123-136.html
   My bibliography  Save this article

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

Author

Listed:
  • Annageldy Arazmuradov

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 incoming FDI in Central Asian economies during the period 1993–2008. A simple panel model suggests that (a) aid had a moderate complementary effect on inward FDI, (b) there was a crowding-out effect such that domestic investment reduced FDI stocks, (c) natural resources were a key attraction for private capital, and (d) increases in development aid offset the crowding-out effect of domestic capital on FDI. It is argued that donors should target aid to enhance the climate for inward investment.

Suggested Citation

  • Annageldy Arazmuradov, 2015. "Can Development Aid Help Promote Foreign Direct Investment? Evidence from Central Asia," Economic Affairs, Wiley Blackwell, vol. 35(1), pages 123-136, February.
    • Handle: RePEc:bla:ecaffa:v:35:y:2015:i:1:p:123-136
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/ecaf.12102
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. George Mavrotas, 2009. "Introduction: Development Aid-Theory, Policies, and Performance," Review of Development Economics, Wiley Blackwell, vol. 13(s1), pages 373-381, August.
    2. Pietro Garibaldi & Nada Mora & Ratna Sahay & Jeromin Zettelmeyer, 2001. "What Moves Capital to Transition Economies?," IMF Staff Papers, Palgrave Macmillan, vol. 48(4), pages 1-6.
    3. de Melo, Martha & Denizer, Cevdet & Gelb, Alan & Tenev, Stoyan, 1997. "Circumstance and choice : the role of initial conditions and policies in transition economies," Policy Research Working Paper Series 1866, The World Bank.
    4. Svensson, Jakob, 2000. "Foreign aid and rent-seeking," Journal of International Economics, Elsevier, vol. 51(2), pages 437-461, August.
    5. William Easterly, 2007. "Was Development Assistance a Mistake?," American Economic Review, American Economic Association, vol. 97(2), pages 328-332, May.
    6. Philipp Harms & Matthias Lutz, 2006. "Aid, Governance and Private Foreign Investment: Some Puzzling Findings for the 1990s," Economic Journal, Royal Economic Society, vol. 116(513), pages 773-790, July.
    7. Carstensen, Kai & Toubal, Farid, 2004. "Foreign direct investment in Central and Eastern European countries: a dynamic panel analysis," Journal of Comparative Economics, Elsevier, vol. 32(1), pages 3-22, March.
    8. M. Ugur Karakaplan & Bilin Neyapti & Selin Sayek, 2005. "Aid and Foreign Direct Investment : International Evidence," Working Papers 0505, Department of Economics, Bilkent University.
    9. Globerman, Steven & Shapiro, Daniel, 2002. "Global Foreign Direct Investment Flows: The Role of Governance Infrastructure," World Development, Elsevier, vol. 30(11), pages 1899-1919, November.
    10. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2004. "On The Empirics of Foreign Aid and Growth," Economic Journal, Royal Economic Society, vol. 114(496), pages 191-216, June.
    11. Francesco Caselli & James Feyrer, 2007. "The Marginal Product of Capital," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 535-568.
    12. Arellano, Cristina & Bulír, Ales & Lane, Timothy & Lipschitz, Leslie, 2009. "The dynamic implications of foreign aid and its variability," Journal of Development Economics, Elsevier, vol. 88(1), pages 87-102, January.
    13. Carro, Martha & Larrú, José María, 2010. "Flowing Together or Flowing Apart: An Analysis of the Relation between FDI and ODA Flows to Argentina and Brazil," MPRA Paper 25064, University Library of Munich, Germany.
    14. Asiedu, Elizabeth & Jin, Yi & Nandwa, Boaz, 2009. "Does foreign aid mitigate the adverse effect of expropriation risk on foreign direct investment?," Journal of International Economics, Elsevier, vol. 78(2), pages 268-275, July.
    15. Mileva, Elitza, 2008. "The impact of capital flows on domestic investment in transition economies," Working Paper Series 871, European Central Bank.
    16. Selaya, Pablo & Sunesen, Eva Rytter, 2012. "Does Foreign Aid Increase Foreign Direct Investment?," World Development, Elsevier, vol. 40(11), pages 2155-2176.
    17. Rumen Dobrinsky, 2007. "Capital accumulation during the transition from plan to market," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 15, pages 845-868, October.
    18. Rumen Dobrinsky, 2007. "Capital accumulation during the transition from plan to market1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 15(4), pages 845-868, October.
    19. Kosack, Stephen & Tobin, Jennifer, 2006. "Funding Self-Sustaining Development: The Role of Aid, FDI and Government in Economic Success," International Organization, Cambridge University Press, vol. 60(1), pages 205-243, January.
    20. George Mavrotas & Peter Nunnenkamp, 2007. "Foreign Aid Heterogeneity: Issues and Agenda," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 143(4), pages 585-595, December.
    21. Kimura, Hidemi & Todo, Yasuyuki, 2010. "Is Foreign Aid a Vanguard of Foreign Direct Investment? A Gravity-Equation Approach," World Development, Elsevier, vol. 38(4), pages 482-497, April.
    22. Ashoka Mody, 2004. "Is FDI Integrating the World Economy?," The World Economy, Wiley Blackwell, vol. 27(8), pages 1195-1222, August.
    23. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Adriana Burlea‐Schiopoiu & Simina Brostescu & Liviu Popescu, 2023. "The impact of foreign direct investment on the economic development of emerging countries of the European Union," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 2148-2177, April.
    2. Salma Ahmed, 2023. "Development Of Asia-Pacific Countries: Does Belt And Road Initiative Make Any Difference?," Asia-Pacific Sustainable Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 30(1), pages 217-262, May.
    3. (Corresponding author) Debapriya Bhattacharya & Towfiqul Islam Khan & Mostafa Amir Sabbih, 2023. "How Successful Were The Least Developed Countries In Attaining The Millennium Development Goals? An Assessment Based On A Synthetic Approach," Asia-Pacific Sustainable Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 30(1), pages 165-193, May.
    4. (Corresponding author) Tae Yong Jung & Jaewan Kim & Jongwoo Moon & Yong Gun Kim, 2023. "Assessment Of The Enhanced Nationally Determined Contributions Of The Republic Of Korea And The Strategies For The 2050 Net-Zero Target," Asia-Pacific Sustainable Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 30(1), pages 43-66, May.
    5. (Corresponding author) Joyashree Roy & Hasan Mahmud, 2023. "What To Focus On In Order To Accelerate Access To Modern Energy Services And Energy Use Efficiency In Bangladesh," Asia-Pacific Sustainable Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 30(1), pages 89-120, May.
    6. J. Muzurura, 2019. "Foreign Direct Investment in Zimbabwe: The Role of Uncertainty, Exports, Cost of Capital, Corruption and Market Size," The Economics and Finance Letters, Conscientia Beam, vol. 6(1), pages 9-24.
    7. Efobi, Uchenna & Nnadi, Matthias, 2015. "Foreign Aid, IFRS Adoption and Foreign Direct Investment," EconStor Preprints 114568, ZBW - Leibniz Information Centre for Economics.
    8. Sèna Kimm Gnangnon, 2021. "Development aid and services export diversification," International Journal of Economic Policy Studies, Springer, vol. 15(1), pages 125-156, February.
    9. Gnangnon, Sèna Kimm, 2020. "Development Aid, Remittances Inflows and Wages in the Manufacturing Sector of Recipient-Countries," EconStor Preprints 213439, ZBW - Leibniz Information Centre for Economics.
    10. Xunpeng Shi & Matthew Wittenstein, 2023. "Aligning Critical Mineral Development In The Asia-Pacific Region With The Sustainable Development Goals," Asia-Pacific Sustainable Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 30(1), pages 151-162, May.
    11. (Corresponding author) Shobhakar Dhakal & Melissa Pradhan, 2023. "Identification And Prioritization Of Barriers To Access International Climate Finance For Nepal," Asia-Pacific Sustainable Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 30(1), pages 121-148, May.
    12. Metaxas, Theodore & Kechagia, Polyxeni, 2016. "Literature review of 100 empirical studies of Foreign Direct Investment: 1950-2015," MPRA Paper 71414, University Library of Munich, Germany.
    13. Metaxas, Theodore & Kechagia, Polyxeni, 2015. "FDI in Peru and Uzbekistan: A comparative analysis in brief," MPRA Paper 63849, University Library of Munich, Germany.
    14. Uchenna R. Efobi & Matthias Nnadi, 2015. "How Does Foreign Aid Affect the Relationship between IFRS Adoption and Foreign Direct Investment?," Research Africa Network Working Papers 15/014, Research Africa Network (RAN).
    15. Anchal Arora, 2023. "Growth, Yield And Environmental Sustainability Of Cotton Production In India: Performance And Policy Measures," Asia-Pacific Sustainable Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 30(1), pages 195-215, May.
    16. Olufemi Adewale Aluko, 2020. "The foreign aid–foreign direct investment relationship in Africa: The mediating role of institutional quality and financial development," Economic Affairs, Wiley Blackwell, vol. 40(1), pages 77-84, February.
    17. Liu, Ailan & Wang, Zhixuan & Zhu, Pengcheng, 2021. "Does informal economy undermine the effects of China’s aid on its outward foreign direct investment?," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 315-329.
    18. ESCAP secretariat, 2023. "Accelerating Climate Action In Asia And The Pacific For Sustainable Development," Asia-Pacific Sustainable Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 30(1), pages 1-17, May.
    19. (Corresponding author) Keigo Akimoto & Fuminori Sano & Takashi Homma & Miyuki Nagashima & Naoko Onishi, 2023. "Analysis Of The 2030 Emissions Reduction Targets Of The Previous And Current Nationally Determined Contributions Of Japan, And A Comparison Between Countries Using Energy-Technology And Energy-Economi," Asia-Pacific Sustainable Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 30(1), pages 19-41, May.
    20. Polyxeni, Kechagia & Theodore, Metaxas, 2019. "An empirical investigation of FDI inflows in developing economies: Terrorism as a determinant factor," The Journal of Economic Asymmetries, Elsevier, vol. 20(C).
    21. Kechagia, Polyxeni & Metaxas, Theodore, 2016. "FDI in Central Asia: Uzbekistan," MPRA Paper 71326, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Annageldy Arazmuradov, 2012. "Foreign Aid, Foreign Direct Investment, and Domestic Investment Nexus in Landlocked Economies of Central Asia," Economic Research Guardian, Weissberg Publishing, vol. 2(1), pages 129-151, May.
    2. Garriga, Ana Carolina & Phillips, Brian John, 2014. "Foreign Aid as a Signal to Investors: Predicting FDI in Post-Conflict Countries," MPRA Paper 88643, University Library of Munich, Germany.
    3. Brun, Jean-François & Gnangnon, Sèna Kimm, 2017. "Does trade openness contribute to driving financing flows for development?," WTO Staff Working Papers ERSD-2017-06, World Trade Organization (WTO), Economic Research and Statistics Division.
    4. Liao, Hongwei & Chi, Yedi & Zhang, Jiarui, 2020. "Impact of international development aid on FDI along the Belt and Road," China Economic Review, Elsevier, vol. 61(C).
    5. Selaya, Pablo & Sunesen, Eva Rytter, 2012. "Does Foreign Aid Increase Foreign Direct Investment?," World Development, Elsevier, vol. 40(11), pages 2155-2176.
    6. D. Tripati Rao & Narayan Sethi & Devi Prasad Dash & Padmaja Bhujabal, 2023. "Foreign Aid, FDI and Economic Growth in South-East Asia and South Asia," Global Business Review, International Management Institute, vol. 24(1), pages 31-47, February.
    7. Dong, Yan & Fan, Cijun, 2017. "The effects of China's aid and trade on its ODI in African countries," Emerging Markets Review, Elsevier, vol. 33(C), pages 1-18.
    8. T.Bhavan, 2014. "Effectiveness of Foreign Aid in Facilitating Foreign Direct Investment: Evidence from Four South Asian Countries," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(12), pages 1770-1783, December.
    9. Donaubauer, Julian & Meyer, Birgit & Nunnenkamp, Peter, 2016. "Aid, Infrastructure, and FDI: Assessing the Transmission Channel with a New Index of Infrastructure," World Development, Elsevier, vol. 78(C), pages 230-245.
    10. Junyan Tian, 2023. "Does agricultural official development assistance facilitate foreign direct investment in agriculture: Evidence from 63 developing countries," Journal of Agricultural Economics, Wiley Blackwell, vol. 74(3), pages 702-718, September.
    11. Julian Donaubauer, 2014. "Does foreign aid really attract foreign investors? New evidence from panel cointegration," Applied Economics Letters, Taylor & Francis Journals, vol. 21(15), pages 1094-1098, October.
    12. Temple, Jonathan R.W., 2010. "Aid and Conditionality," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4415-4523, Elsevier.
    13. Sèna Kimm Gnangnon, 2022. "Aid for Trade, export product diversification, and foreign direct investment," Review of Development Economics, Wiley Blackwell, vol. 26(1), pages 534-561, February.
    14. Donaubauer, Julian & Herzer, Dierk & Nunnenkamp, Peter, 2012. "Does aid for education attract foreign investors? An empirical analysis for Latin America," Kiel Working Papers 1806, Kiel Institute for the World Economy (IfW Kiel).
    15. Olufemi Adewale Aluko, 2020. "The foreign aid–foreign direct investment relationship in Africa: The mediating role of institutional quality and financial development," Economic Affairs, Wiley Blackwell, vol. 40(1), pages 77-84, February.
    16. Kafayat Amusa & Nara Monkam & Nicola Viegi, 2016. "Foreign aid and foreign direct investment in Sub-Sahara Africa: A panel data analysis," Working Papers 89, Economic Research Southern Africa.
    17. John C. Anyanwu, 2012. "Why Does Foreign Direct Investment Go Where It Goes?: New Evidence From African Countries," Annals of Economics and Finance, Society for AEF, vol. 13(2), pages 425-462, November.
    18. T. Bhavan & Changsheng Xu & Chunping Zhong, 2011. "Growth effect of foreign aid and volatility in South Asia," International Journal of Development Issues, Emerald Group Publishing Limited, vol. 10(3), pages 204-213, September.
    19. Kimura, Hidemi & Todo, Yasuyuki, 2010. "Is Foreign Aid a Vanguard of Foreign Direct Investment? A Gravity-Equation Approach," World Development, Elsevier, vol. 38(4), pages 482-497, April.
    20. EFOBI Uchenna & NNADI Matthias, 2015. "How Does Foreign Aid Affect the Relationship between IFRS Adoption and Foreign Direct Investment?," Working Papers of the African Governance and Development Institute. 15/014, African Governance and Development Institute..

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ecaffa:v:35:y:2015:i:1:p:123-136. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0265-0665 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.