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Foreign Aid, Foreign Direct Investment, and Domestic Investment Nexus in Landlocked Economies of Central Asia

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  • Annageldy Arazmuradov

    (SDepartment of Economics and Management of Technology, University of Bergamo, Dalmine, Italy)

Abstract

This paper investigates the relationship between foreign aid (ODA), foreign direct investment (FDI), and their effect on domestic investment in five landlocked and emerging economies of Central Asia - Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan - for the period 1992–2009. It is important for donor countries to understand whether or not their aid helps to bring in private capital essential in transition period. If it does, it creates a ground for public-private partnership that could restore conditions for economic growth in transition economies. If it does not, then it is necessary to reassess the mechanisms of aid architecture. As aggregate time series are expected to affect each other, we employ a multivariate system of seemingly unrelated regression (SUR) equations. We test the ODA-FDI link on two levels: regional and country. On the regional level, results indicate that (1) aid has a significant positive complementing effect on FDI inflows and (2) FDI complements domestic i vestment, while ODA decreases it. However, on a country level, foreign aid catalyzes FDI inflows only in Kyrgyzstan and Tajikistan. Our evidence suggests that the ODA-FDI nexus is present in countries with substantial aid inflows and dwindling economic performance.

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  • Annageldy Arazmuradov, 2012. "Foreign Aid, Foreign Direct Investment, and Domestic Investment Nexus in Landlocked Economies of Central Asia," Economic Research Guardian, Weissberg Publishing, vol. 2(1), pages 129-151, May.
    • Handle: RePEc:wei:journl:v:2:y:2012:i:1:p:129-151
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    2. Adeel Ahmad DAR & Taj MUHAMMAD & M. Wasif SIDDIQI, 2020. "Bureaucratic Quality and FDI Inflows Nexus: A South Asian Perspective," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 149-168, September.
    3. Liao, Hongwei & Chi, Yedi & Zhang, Jiarui, 2020. "Impact of international development aid on FDI along the Belt and Road," China Economic Review, Elsevier, vol. 61(C).
    4. Moheddine Younsi & Marwa Bechtini & Hasna Khemili, 2021. "The effects of foreign aid, foreign direct investment and domestic investment on economic growth in African countries: Nonlinearities and complementarities," African Development Review, African Development Bank, vol. 33(1), pages 55-66, March.
    5. Liu, Ailan & Wang, Zhixuan & Zhu, Pengcheng, 2021. "Does informal economy undermine the effects of China’s aid on its outward foreign direct investment?," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 315-329.
    6. Dong, Yan & Fan, Cijun, 2017. "The effects of China's aid and trade on its ODI in African countries," Emerging Markets Review, Elsevier, vol. 33(C), pages 1-18.
    7. Kechagia, Polyxeni & Metaxas, Theodore, 2016. "FDI in Central Asia: Uzbekistan," MPRA Paper 71326, University Library of Munich, Germany.

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    More about this item

    Keywords

    Central Asia; Transition Economies; Foreign Direct Investment; Official Development Assistance; Gross Fixed Capital Formation;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F30 - International Economics - - International Finance - - - General
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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