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Foreign aid and private investment in developing economies

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  • Donald W. Snyder

    (School of Economics and Business Administration, Saint Mary's College, Moraga, CA 94575, USA)

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    Abstract

    The effect of aid on private-sector investment has long been a matter of debate. Many economists have taken the position that aid stimulates private investment in LDCs by filling macroeconomic savings or foreign-exchange gaps. Others have countered that aid has a negative effect on private investment because it is often wasted or counterproductive, generates dutch-disease effects, and enables the central government to compete resources away from the private sector. This paper empirically evaluates the association between aid and private investment using annual panel data from 36 developing countries over the period 1977 to 1991. The results clearly show that countries which receive larger aid allocations experience lower subsequent levels of private investment.

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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

    Volume (Year): 8 (1996)
    Issue (Month): 6 ()
    Pages: 735-745

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    Handle: RePEc:wly:jintdv:v:8:y:1996:i:6:p:735-745

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    Web page: http://www3.interscience.wiley.com/journal/5102/home

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    1. Khan, Mohsin S. & Reinhart, Carmen M., 1990. "Private investment and economic growth in developing countries," World Development, Elsevier, vol. 18(1), pages 19-27, January.
    2. Joshua Greene & Delano Villanueva, 1991. "Private Investment in Developing Countries: An Empirical Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 33-58, March.
    3. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
    4. Landau, Daniel, 1990. "Public Choice and Economic Aid," Economic Development and Cultural Change, University of Chicago Press, vol. 38(3), pages 559-75, April.
    5. Mosley, Paul & Hudson, John & Horrell, Sara, 1987. "Aid, the Public Sector and the Market in Less Developed Countries," Economic Journal, Royal Economic Society, vol. 97(387), pages 616-41, September.
    6. Halevi, Nadav, 1976. "The Effects on Investment and Consumption of Import Surpluses of Developing Countries," Economic Journal, Royal Economic Society, vol. 86(344), pages 853-58, December.
    7. White, Howard & Wignaraja, Ganeshan, 1992. "Exchange rates, trade liberalization and aid: The Sri Lankan experience," World Development, Elsevier, vol. 20(10), pages 1471-1480, October.
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    Cited by:
    1. Dierk Herzer & Oliver Morrissey, . "The Long-Run Effect of Aid on Domestic Output," Discussion Papers 09/01, University of Nottingham, CREDIT.
    2. Kevin Sylwester, 2008. "Foreign Aid and Urbanization in Developing Countries," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 7(2), pages 153-166, August.

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