Foreign aid, foreign direct investment and economic growth of Lao PDR
AbstractThis paper investigates the impact of foreign aid and foreign direct investment on the long-run income per capita and short-run income growth of Lao PDR. We formulate a modification of Solow model; then we employ a cointegration technique to carry out the long-run relationship, and employ an error correction model to estimate the short-run growth effects. The results show that foreign aid has a strong positive impact and is the main contributor on income level and income growth of Lao PDR in the long run. Surprisingly, FDI has significant negative impact on long-run income per capita and small positive impact on income growth in the short run. We conclude that the long-run negative impact of FDI might be due to its surge and concentration on few economic sectors and due to its extreme rises and falls in some period. Therefore, the policies to promote FDI in many sectors and the policies that attract stable FDI inflows should be promulgated.
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Bibliographic InfoPaper provided by Hiroshima University, Graduate School for International Development and Cooperation (IDEC) in its series IDEC DP2 Series with number 1-2.
Length: 22 pages
Date of creation: Sep 2011
Date of revision:
Foreign direct investment; Convergence; Economic growth;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F35 - International Economics - - International Finance - - - Foreign Aid
- O1 - Economic Development, Technological Change, and Growth - - Economic Development
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
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