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Does Aid for Education Attract Foreign Investors? An Empirical Analysis for Latin America

Author

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  • Julian Donaubauer

    (Helmut Schmidt University Hamburg, Hamburg, Germany)

  • Dierk Herzer

    (Helmut Schmidt University Hamburg, Hamburg, Germany)

  • Peter Nunnenkamp

    (Kiel Institute for the World Economy, Kiel, Germany)

Abstract

We address the question of whether foreign aid helps attract foreign direct investment (FDI). This could be achieved if well-targeted aid removed critical impediments to higher FDI inflows. In particular, we test the hypothesis that aid for education is an effective means to increase FDI flows to host countries in Latin America where schooling and education appear to be inadequate from the viewpoint of foreign investors. We employ panel data techniques covering 21 Latin American countries over the period from 1984 to 2008. We find that aid for education has a statistically significant positive effect on FDI. This effect is robust to potential outliers, sample selection within Latin America, alternative specifications and different estimation methods.

Suggested Citation

  • Julian Donaubauer & Dierk Herzer & Peter Nunnenkamp, 2014. "Does Aid for Education Attract Foreign Investors? An Empirical Analysis for Latin America," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 26(5), pages 597-613, December.
    • Handle: RePEc:pal:eurjdr:v:26:y:2014:i:5:p:597-613
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    Citations

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    Cited by:

    1. 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.
    2. Jean-Louis Combes & Rasmané Ouedraogo & Mr. Sampawende J Tapsoba, 2016. "What Does Aid Do to Fiscal Policy? New Evidence," IMF Working Papers 2016/112, International Monetary Fund.
    3. 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.

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