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A regional perspective on Aid and FDI in Southern Africa

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  • Henri Bezuidenhout

Abstract

During the last decade international aid flows diminished while Africa’s relative share of global foreign direct investment (FDI) declined. This went together with lacklustre growth and low human development levels. In 2005, the G8 countries announced that they would increase aid to Africa by some $25 billion per annum. The pledge for increasing aid seems to have triggered an extensive debate about the role of aid and other international capital flows in the development of poorer countries. This study contributes to this debate. Specifically it addresses the role of foreign direct investment and aid to growth and human development. Panel estimations are used to determine the relationships between aid, FDI and growth in the Southern Africa region from 1990 to 2005. Negative relationships are found between FDI and growth while aid and growth turned out to be unrelated.

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Bibliographic Info

Paper provided by Economic Research Southern Africa in its series Working Papers with number 147.

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Date of creation: 2009
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Handle: RePEc:rza:wpaper:147

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Keywords: Foreign direct investment (FDI); Aid; SACU; SADC; South Africa; Growth; Human capital development; Regional integration;

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References

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  1. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2007. "Enhanced routines for instrumental variables/GMM estimation and testing," CERT Discussion Papers, Centre for Economic Reform and Transformation, Heriot Watt University 0706, Centre for Economic Reform and Transformation, Heriot Watt University.
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  3. Alfaro, Laura & Chanda, Areendam & Kalemli-Ozcan, Sebnem & Sayek, Selin, 2004. "FDI and economic growth: the role of local financial markets," Journal of International Economics, Elsevier, Elsevier, vol. 64(1), pages 89-112, October.
  4. Sachs, Jeffrey D & Warner, Andrew M, 1997. "Sources of Slow Growth in African Economies," Journal of African Economies, Centre for the Study of African Economies (CSAE), Centre for the Study of African Economies (CSAE), vol. 6(3), pages 335-76, October.
  5. Elizabeth Asiedu, 2004. "Policy Reform and Foreign Direct Investment in Africa: Absolute Progress but Relative Decline," Development Policy Review, Overseas Development Institute, vol. 22(1), pages 41-48, 01.
  6. Kosack, Stephen & Tobin, Jennifer, 2006. "Funding Self-Sustaining Development: The Role of Aid, FDI and Government in Economic Success," International Organization, Cambridge University Press, Cambridge University Press, vol. 60(01), pages 205-243, January.
  7. François Bourguignon & Mark Sundberg, 2007. "Aid Effectiveness – Opening the Black Box," American Economic Review, American Economic Association, American Economic Association, vol. 97(2), pages 316-321, May.
  8. Ranis, G. & Ramirez, A. & Stewart, F., 1997. "Economic Growth and Human Development," Papers, Yale - Economic Growth Center 787, Yale - Economic Growth Center.
  9. Shekhar Aiyar & Ummul Hasanath Ruthbah, 2008. "Where Did All the Aid Go? An Empirical Analysis of Absorption and Spending," IMF Working Papers 08/34, International Monetary Fund.
  10. William Easterly, 2007. "Was Development Assistance a Mistake?," American Economic Review, American Economic Association, American Economic Association, vol. 97(2), pages 328-332, May.
  11. Svensson, Jakob, 2000. "Foreign aid and rent-seeking," Journal of International Economics, Elsevier, Elsevier, vol. 51(2), pages 437-461, August.
  12. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, Elsevier, vol. 45(1), pages 115-135, June.
  13. Pablo Selaya & Eva R. Sunesen, 2008. "Does Foreign Aid Increase Foreign Direct Investment?," Discussion Papers 08-04, University of Copenhagen. Department of Economics.
  14. Neil Foster, 2006. "Exports, growth and threshold effects in Africa," Journal of Development Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 42(6), pages 1056-1074.
  15. Koji Miyamoto, 2003. "Human Capital Formation and Foreign Direct Investment in Developing Countries," OECD Development Centre Working Papers 211, OECD Publishing.
  16. William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 17(3), pages 23-48, Summer.
  17. Raghuram Rajan & Arvind Subramanian, 2007. "Does Aid Affect Governance?," American Economic Review, American Economic Association, American Economic Association, vol. 97(2), pages 322-327, May.
  18. Bezuidenhout, Henri & Naude, Wim, 2008. "Foreign Direct Investment and Trade in the Southern African Development Community," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2008/88, World Institute for Development Economic Research (UNU-WIDER).
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Cited by:
  1. Hasanat Shah, Syed & He, Bin & Li, Junjiang, 2011. "The Causality and Economic Impact of FDI inflows from Trade Partners in Pakistan," MPRA Paper 35645, University Library of Munich, Germany.
  2. Khan, Shiraz & Mehboob, Farhan, 2014. "Impact of FDI on GDP: An Analysis of Global Economy on Production Function," MPRA Paper 55352, University Library of Munich, Germany.
  3. Carike Claassen & Elsabé Loots & Henri Bezuidenhout, 2011. "Chinese Foreign Direct Investment in Africa," Working Papers 261, Economic Research Southern Africa.

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