Can Foreign Aid Buy Investment? Appropriation Through Conflict
AbstractThe failure of foreign aid to promote growth in the developing world has received significant attention as evidence suggests that foreign aid does not translate into investment. This research has demonstrated that poor institutions in these developing economies (particularly with respect to property rights) results in an inability to fully appropriate the return to one’s investment, thereby serving as a prominent disincentive to investment. This paper presents an experimental test of a a 2-player, one-shot game of conflict in which we vary the strength of property rights. Our results suggest that stronger property rights reduce conflict and increase investment. In addition, we test the conventional wisdom that technological progress can increase the effectiveness of aid in stimulating investment. Contrary to intuition, we find technological progress has practically no effect on investment and that this failure to stimulate investment is largely due to deficiencies in property right institutions. Key Words: Property Rights; Conflict; Investment; Foreign Aid; Experiments
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Bibliographic InfoPaper provided by Department of Economics, Appalachian State University in its series Working Papers with number 09-06.
Date of creation: 2009
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Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- F35 - International Economics - - International Finance - - - Foreign Aid
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
- O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
- P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-03-07 (All new papers)
- NEP-DEV-2009-03-07 (Development)
- NEP-EXP-2009-03-07 (Experimental Economics)
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