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Does foreign aid increase private investment? Evidence from panel cointegration

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  • Dierk Herzer
  • Michael Grimm

Abstract

This article uses panel cointegration and causality techniques to examine the long run relationship between foreign aid and private investment. Our main result is that aid has a statistically significant negative effect on private investment. This result is robust to outliers, different measures and forms of aid, sample selection and the sample period. In addition, we find that long run causality runs in both directions, suggesting that an increase in aid reduces private investment and that, in turn, higher private investment leads to lower aid inflows.

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File URL: http://hdl.handle.net/10.1080/00036846.2011.566183
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 44 (2012)
Issue (Month): 20 (July)
Pages: 2537-2550

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Handle: RePEc:taf:applec:44:y:2012:i:20:p:2537-2550

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Cited by:
  1. Dierk Herzer, Peter Nunnenkamp, 2012. "The Effect of Foreign Aid on Income Inequality: Evidence from Panel Cointegration," Kiel Working Papers 1762, Kiel Institute for the World Economy.
  2. Abdilahi Ali & Baris Alpaslan, 2013. "Do Migrant Remittances Complement Domestic Investment? New Evidence from Panel Cointegration," The School of Economics Discussion Paper Series 1308, Economics, The University of Manchester.

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