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Does aid stimulate foreign direct investment? The role of social cohesion

Author

Listed:
  • Tony Addison

    (University of Copenhagen and UNU- WIDER)

  • Mina Baliamoune-Lutz

    (University of North Florida, Policy Center for the New South, and Economic Research Forum)

Abstract

We explore the effects of foreign aid on FDI in a large number of aid-recipient countries using data for the period 1985-2008 and focusing in particular on the impact of the interplay of aid and social cohesion. The preliminary results suggest that the independent effect of aid on FDI is negative in sub-Saharan Africa (SSA) and Latin America (LAC) and positive in other regions, while aid seems to crowd out FDI in countries with high levels of human capital. In addition, we find that the interplay of aid and social cohesion in SSA and LAC has an inverted-U relationship with FDI, suggesting diminishing returns to social cohesion in these two regions.

Suggested Citation

  • Tony Addison & Mina Baliamoune-Lutz, 2020. "Does aid stimulate foreign direct investment? The role of social cohesion," Economics Bulletin, AccessEcon, vol. 40(3), pages 2289-2296.
    • Handle: RePEc:ebl:ecbull:eb-19-00999
    as

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    References listed on IDEAS

    as
    1. Selaya, Pablo & Sunesen, Eva Rytter, 2012. "Does Foreign Aid Increase Foreign Direct Investment?," World Development, Elsevier, vol. 40(11), pages 2155-2176.
    2. Mina Baliamoune-Lutz & George Mavrotas, 2009. "Aid Effectiveness: Looking at the Aid-Social Capital-Growth Nexus," Review of Development Economics, Wiley Blackwell, vol. 13(s1), pages 510-525, August.
    3. James D. Fearon & Macartan Humphreys & Jeremy M. Weinstein, 2009. "Can Development Aid Contribute to Social Cohesion after Civil War? Evidence from a Field Experiment in Post-conflict Liberia," American Economic Review, American Economic Association, vol. 99(2), pages 287-291, May.
    4. Philipp Harms & Matthias Lutz, 2006. "Aid, Governance and Private Foreign Investment: Some Puzzling Findings for the 1990s," Economic Journal, Royal Economic Society, vol. 116(513), pages 773-790, July.
    5. George Economides & Sarantis Kalyvitis & Apostolis Philippopoulos, 2008. "Does foreign aid distort incentives and hurt growth? Theory and evidence from 75 aid-recipient countries," Public Choice, Springer, vol. 134(3), pages 463-488, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Foreign aid; foreign direct investment (FDI); social cohesion; human capital;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F2 - International Economics - - International Factor Movements and International Business

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