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Japanese Aid as a Prerequisite for FDI : The Case of Southeast Asian Countries

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  • Séverine Blaise

    (Australia-Japan Research Centre)

Abstract

This study investigates the nexus between Japans official development assistance and foreign direct investment inflows in Southeast Asian countries. An analysis of the geographical and sectoral decomposition of aid flows reveals that assistance programs were mainly allocated in the form of loans for economic infrastructure projects. This orientation attests that the needs of the recipient country are taken into account but also reveals that it is in keeping with a return on investment. Conditional logit analysis shows that Japanese aid flows did have a significant positive impact on private investors location choice even though other profit-maximising factors such as agglomeration effects or the quality of infrastructure had a leading spill-over effect. In a context of growing scarcity of aid funding, the study concludes by asserting the importance of a complementary process in which foreign aid is directed towards the development of infrastructure, acting as a pre-requisite for future direct investments. Finally, Japan providing an interesting case study, we will stress the need for a better cooperation between the public and private sectors in development assistance programs.

Suggested Citation

  • Séverine Blaise, 2009. "Japanese Aid as a Prerequisite for FDI : The Case of Southeast Asian Countries," Finance Working Papers 22767, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:financ:22767
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    References listed on IDEAS

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    1. Masahiro Kawai & Shinji Takagi, 2004. "Japan's official development assistance: recent issues and future directions," Journal of International Development, John Wiley & Sons, Ltd., pages 255-280.
    2. David L. Carr & James R. Markusen & Keith E. Maskus, 2001. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," American Economic Review, American Economic Association, pages 693-708.
    3. Egger, Peter & Winner, Hannes, 2006. "How Corruption Influences Foreign Direct Investment: A Panel Data Study," Economic Development and Cultural Change, University of Chicago Press, vol. 54(2), pages 459-486, January.
    4. Kiichiro Fukasaku & M. Kawai & M. G. Plummer & A. Trzeciak-Duval, 2005. "Policy Coherence Towards East Asia: Development Challenges for OECD Countries," OECD Development Centre Policy Briefs 26, OECD Publishing.
    5. Takatoshi Ito & Anne O. Krueger, 1995. "Introduction to "Growth Theories in Light of the East Asian Experience, NBER-EASE volume 4"," NBER Chapters, in: Growth Theories in Light of the East Asian Experience, NBER-EASE Volume 4, pages 1-6 National Bureau of Economic Research, Inc.
    6. Iimi, Atsushi, 2004. "(Anti-)Competitive effect of joint bidding: evidence from ODA procurement auctions," Journal of the Japanese and International Economies, Elsevier, pages 416-439.
    7. Robert E. Lipsey, 1999. "The Location and Characteristics of U.S. Affiliates in Asia," NBER Working Papers 6876, National Bureau of Economic Research, Inc.
    8. Masahiro Kawai & Shinji Takagi, 2004. "Japan's official development assistance: recent issues and future directions," Journal of International Development, John Wiley & Sons, Ltd., pages 255-280.
    9. Dudley, Leonard & Montmarquette, Claude, 1976. "A Model of the Supply of Bilateral Foreign Aid," American Economic Review, American Economic Association, pages 132-142.
    10. Urata, Shujiro & Kawai, Hiroki, 2000. "The Determinants of the Location of Foreign Direct Investment by Japanese Small and Medium-Sized Enterprises," Small Business Economics, Springer, pages 79-103.
    11. Haider Ali Khan, 2002. "How Effective Is Japanese Foreign Aid? Econometric Results from a Bounded Rationality Model for Indonesia," CIRJE F-Series CIRJE-F-164, CIRJE, Faculty of Economics, University of Tokyo.
    12. KIMURA Hidemi & TODO Yasuyuki, 2007. "Is Foreign Aid a Vanguard of FDI? A Gravity-Equation Approach," Discussion papers 07007, Research Institute of Economy, Trade and Industry (RIETI).
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    Cited by:

    1. Olaf Unteroberdoerster & Runchana Pongsaparn, 2011. "Financial Integration and Rebalancing in Asia," IMF Working Papers 11/243, International Monetary Fund.
    2. Philip Ifeakachukwu Nwosa & Temidayo Oladiran Akinbobola, 2016. "Capital Inflows and Economic Growth in Nigeria: The Role of Macroeconomic Policies," African Development Review, African Development Bank, vol. 28(3), pages 277-290, September.

    More about this item

    Keywords

    Japan; official development assistance; Aid; investment; Infrastructure;

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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