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Aid and investment in LDCs: A robust approach

Author

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  • Kwabena Gyimah-Brempong
  • Jeffrey Racine

Abstract

This paper uses panel data and the Local Linear Kernel Estimator (LLKE), to investigate the effects of aid on physical capital investment in developing countries. Specifically, we investigate the robustness of the relationship between aid and physical capital investment in Less Developed countries (LDCs) using two different measures of aid and five measures of the policy environment. We find that external aid has a positive and significant impact on physical capital investment given the support of the sample data we use. This effect is robust to the measurement of aid as well as the policy environment. However, the character of the positive relationship between aid and investment varies with the combination of the aid measure and the policy environment. We find that conditional on inflows, the better the policy environment, the higher the investment rate, all things being equal. The results have implications for aid research and aid policy.

Suggested Citation

  • Kwabena Gyimah-Brempong & Jeffrey Racine, 2010. "Aid and investment in LDCs: A robust approach," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 19(2), pages 319-349.
  • Handle: RePEc:taf:jitecd:v:19:y:2010:i:2:p:319-349
    DOI: 10.1080/09638190802464974
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    Citations

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    Cited by:

    1. Karimu, Amin & Brännlund, Runar, 2013. "Functional form and aggregate energy demand elasticities: A nonparametric panel approach for 17 OECD countries," Energy Economics, Elsevier, vol. 36(C), pages 19-27.
    2. Changwoo Nam & Jiyoon Oh, . "Changes in Competition of Small vs. Large Firms from International Trade," Chapters, Economic Research Institute for ASEAN and East Asia (ERIA).
    3. G. Ardizzi & F. Crudu & C. Petraglia, 2015. "The Impact of Electronic Payments on Bank Cost Efficiency: Nonparametric Evidence," Working Paper CRENoS 201517, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    4. Yogo, Thierry Urbain & Mallaye, Douzounet, 2013. "Foreign Aid and Mobilization of Growth Factors in Sub-Saharan Africa," WIDER Working Paper Series 103, World Institute for Development Economic Research (UNU-WIDER).
    5. repec:spr:envpol:v:19:y:2017:i:2:d:10.1007_s10018-016-0162-5 is not listed on IDEAS
    6. Man, Georg, 2014. "Political competition and economic growth: A nonlinear relationship?," European Journal of Political Economy, Elsevier, vol. 36(C), pages 287-302.
    7. Tomasz Czekaj & Arne Henningsen, 2013. "Panel Data Specifications in Nonparametric Kernel Regression: An Application to Production Functions," IFRO Working Paper 2013/5, University of Copenhagen, Department of Food and Resource Economics.
    8. Brännlund Runar & Karimu Amin & Söderholm Patrik, 2017. "Convergence in carbon dioxide emissions and the role of growth and institutions: a parametric and non-parametric analysis," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 19(2), pages 359-390, April.

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