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Japanese Aid as a Prerequisite for FDI : The Case of Southeast Asian Countries

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  • Séverine Blaise

    (Australia-Japan Research Centre)

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    Abstract

    This study investigates the nexus between Japans official development assistance and foreign direct investment inflows in Southeast Asian countries. An analysis of the geographical and sectoral decomposition of aid flows reveals that assistance programs were mainly allocated in the form of loans for economic infrastructure projects. This orientation attests that the needs of the recipient country are taken into account but also reveals that it is in keeping with a return on investment. Conditional logit analysis shows that Japanese aid flows did have a significant positive impact on private investors location choice even though other profit-maximising factors such as agglomeration effects or the quality of infrastructure had a leading spill-over effect. In a context of growing scarcity of aid funding, the study concludes by asserting the importance of a complementary process in which foreign aid is directed towards the development of infrastructure, acting as a pre-requisite for future direct investments. Finally, Japan providing an interesting case study, we will stress the need for a better cooperation between the public and private sectors in development assistance programs.

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    Bibliographic Info

    Paper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 22767.

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    Date of creation: Jan 2009
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    Handle: RePEc:eab:financ:22767

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    Related research

    Keywords: Japan; official development assistance; Aid; investment; Infrastructure;

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    References

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    1. Dudley, Leonard & Montmarquette, Claude, 1976. "A Model of the Supply of Bilateral Foreign Aid," American Economic Review, American Economic Association, American Economic Association, vol. 66(1), pages 132-42, March.
    2. Urata, Shujiro & Kawai, Hiroki, 2000. " The Determinants of the Location of Foreign Direct Investment by Japanese Small and Medium-Sized Enterprises," Small Business Economics, Springer, Springer, vol. 15(2), pages 79-103, September.
    3. Robert E. Lipsey, 1999. "The Location and Characteristics of U.S. Affiliates in Asia," NBER Working Papers, National Bureau of Economic Research, Inc 6876, National Bureau of Economic Research, Inc.
    4. Haider Ali Khan, 2002. "How Effective Is Japanese Foreign Aid? Econometric Results from a Bounded Rationality Model for Indonesia," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-164, CIRJE, Faculty of Economics, University of Tokyo.
    5. Takatoshi Ito & Anne O. Krueger, 1995. "Introduction to "Growth Theories in Light of the East Asian Experience, NBER-EASE volume 4"," NBER Chapters, National Bureau of Economic Research, Inc, in: Growth Theories in Light of the East Asian Experience, NBER-EASE Volume 4, pages 1-6 National Bureau of Economic Research, Inc.
    6. David L. Carr & James R. Markusen & Keith E. Maskus, 1998. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," NBER Working Papers, National Bureau of Economic Research, Inc 6773, National Bureau of Economic Research, Inc.
    7. Iimi, Atsushi, 2004. "(Anti-)Competitive effect of joint bidding: evidence from ODA procurement auctions," Journal of the Japanese and International Economies, Elsevier, Elsevier, vol. 18(3), pages 416-439, September.
    8. Egger, Peter & Winner, Hannes, 2006. "How Corruption Influences Foreign Direct Investment: A Panel Data Study," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 54(2), pages 459-86, January.
    9. KIMURA Hidemi & TODO Yasuyuki, 2007. "Is Foreign Aid a Vanguard of FDI? A Gravity-Equation Approach," Discussion papers, Research Institute of Economy, Trade and Industry (RIETI) 07007, Research Institute of Economy, Trade and Industry (RIETI).
    10. Kiichiro Fukasaku & M. Kawai & M. G. Plummer & A. Trzeciak-Duval, 2005. "Policy Coherence Towards East Asia: Development Challenges for OECD Countries," OECD Development Centre Policy Briefs, OECD Publishing 26, OECD Publishing.
    11. Kawai, Masahiro & Takagi, Shinji, 2001. "Japan's official development assistance : recent issues and future directions," Policy Research Working Paper Series, The World Bank 2722, The World Bank.
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    Cited by:
    1. Olaf Unteroberdoerster & Runchana Pongsaparn, 2011. "Financial Integration and Rebalancing in Asia," IMF Working Papers, International Monetary Fund 11/243, International Monetary Fund.

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