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A regional perspective on Aid and FDI in Southern Africa

  • Henri Bezuidenhout

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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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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  1. William Easterly, 2007. "Was Development Assistance a Mistake?," American Economic Review, American Economic Association, vol. 97(2), pages 328-332, May.
  2. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2007. "Enhanced routines for instrumental variables/GMM estimation and testing," Boston College Working Papers in Economics 667, Boston College Department of Economics, revised 05 Sep 2007.
  3. Svensson, Jakob, 1998. "Foreign aid and rent-seeking," Policy Research Working Paper Series 1880, The World Bank.
  4. Ranis, G. & Ramirez, A. & Stewart, F., 1997. "Economic Growth and Human Development," Papers 787, Yale - Economic Growth Center.
  5. Raghuram Rajan & Arvind Subramanian, 2007. "Does Aid Affect Governance?," American Economic Review, American Economic Association, vol. 97(2), pages 322-327, May.
  6. W. A. Naude & W. F. Krugell, 2007. "Investigating geography and institutions as determinants of foreign direct investment in Africa using panel data," Applied Economics, Taylor & Francis Journals, vol. 39(10), pages 1223-1233.
  7. 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.
  8. Bezuidenhout, Henri & Naude, Wim, 2008. "Foreign Direct Investment and Trade in the Southern African Development Community," Working Paper Series RP2008/88, World Institute for Development Economic Research (UNU-WIDER).
  9. Selaya, Pablo & Sunesen, Eva Rytter, 2012. "Does Foreign Aid Increase Foreign Direct Investment?," World Development, Elsevier, vol. 40(11), pages 2155-2176.
  10. 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.
  11. Eduardo Borensztein & Jose De Gregorio & Jong-Wha Lee, 1995. "How Does Foreign Direct Investment Affect Economic Growth?," NBER Working Papers 5057, National Bureau of Economic Research, Inc.
  12. Kosack, Stephen & Tobin, Jennifer, 2006. "Funding Self-Sustaining Development: The Role of Aid, FDI and Government in Economic Success," International Organization, Cambridge University Press, vol. 60(01), pages 205-243, January.
  13. Sebnem Kalemli-Ozcan & Laura Alfaro & Selin Sayek & Areendam Chanda, 2002. "FDI and Economic Growth: The Role of Local Financial Markets," Macroeconomics 0212007, EconWPA.
  14. Sachs, J-D & Warner, A-M, 1996. "Sources of Slow Growth in African Economies," Papers 545, Harvard - Institute for International Development.
  15. François Bourguignon & Mark Sundberg, 2007. "Aid Effectiveness – Opening the Black Box," American Economic Review, American Economic Association, vol. 97(2), pages 316-321, May.
  16. Neil Foster, 2006. "Exports, growth and threshold effects in Africa," Journal of Development Studies, Taylor & Francis Journals, vol. 42(6), pages 1056-1074.
  17. William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer.
  18. Koji Miyamoto, 2003. "Human Capital Formation and Foreign Direct Investment in Developing Countries," OECD Development Centre Working Papers 211, OECD Publishing.
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