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Aid and investment in LDCs: A robust approach

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  • Kwabena Gyimah-Brempong
  • Jeffrey Racine

Abstract

This paper uses panel data and the Local Linear Kernel Estimator (LLKE), to investigate the effects of aid on physical capital investment in developing countries. Specifically, we investigate the robustness of the relationship between aid and physical capital investment in Less Developed countries (LDCs) using two different measures of aid and five measures of the policy environment. We find that external aid has a positive and significant impact on physical capital investment given the support of the sample data we use. This effect is robust to the measurement of aid as well as the policy environment. However, the character of the positive relationship between aid and investment varies with the combination of the aid measure and the policy environment. We find that conditional on inflows, the better the policy environment, the higher the investment rate, all things being equal. The results have implications for aid research and aid policy.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09638190802464974
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 19 (2010)
Issue (Month): 2 ()
Pages: 319-349

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Handle: RePEc:taf:jitecd:v:19:y:2010:i:2:p:319-349

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Web page: http://www.tandfonline.com/RJTE20

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Related research

Keywords: aid; investment; developing countries; nonparametric kernel regression; policy impacts;

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Cited by:
  1. Tomasz Czekaj & Arne Henningsen, 2013. "Panel Data Specifications in Nonparametric Kernel Regression: An Application to Production Functions," IFRO Working Paper 2013/5, University of Copenhagen, Department of Food and Resource Economics.
  2. Douzounet Mallaye & Yogo Thierry Urbain, 2013. "Foreign aid and mobilization of growth factors in sub-Saharan Africa," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).

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