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Does Aid for Education Attract Foreign Investors? An Empirical Analysis for Latin America

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Listed author(s):
  • Julian Donaubauer
  • Dierk Herzer
  • Peter Nunnenkamp

Abstract

We address the question of whether foreign aid helps attract foreign direct investment (FDI). This could be achieved if well targeted aid removed critical impediments to higher FDI inflows. In particular, we test the hypothesis that aid for education is an effective means to increase FDI flows to host countries in Latin America where schooling and education appears to be inadequate from the viewpoint of foreign investors. We employ panel data techniques covering 21 Latin American countries over the period from 1984 to 2008. We find that aid for education has a statistically significant positive effect on FDI. This effect is robust to potential outliers, sample selection, alternative specifications and different estimation methods.

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Paper provided by FIW in its series FIW Working Paper series with number 120.

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Length: 35
Date of creation: Apr 2013
Handle: RePEc:wsr:wpaper:y:2013:i:120
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Keywords: foreign aid; foreign direct investment; aid effectiveness; human capital;

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Find related papers by JEL classification:
  • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
  • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
  • F35 - International Economics - - International Finance - - - Foreign Aid
  • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
  • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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Cited by:

  1. Donaubauer, Julian & Meyer, Birgit & Nunnenkamp, Peter, 2016. "Aid, Infrastructure, and FDI: Assessing the Transmission Channel with a New Index of Infrastructure," World Development, Elsevier, vol. 78(C), pages 230-245.
  2. Kleemann, Linda & Nunnenkamp, Peter & Thiele, Rainer, 2014. "Gender inequality, female leadership, and aid allocation: A panel analysis of aid for education," WIDER Working Paper Series 010, World Institute for Development Economic Research (UNU-WIDER).
  3. Julian Donaubauer, 2014. "Does foreign aid really attract foreign investors? New evidence from panel cointegration," Applied Economics Letters, Taylor & Francis Journals, vol. 21(15), pages 1094-1098, October.

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