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EU aid for ACP investment

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  • Wolf, Susanna

Abstract

The partnership between the EU and the ACP countries (that include 38 of the world?s 49 least developed countries) has a long standing history and was renewed in 2000 with the Cotonou Agreement. Furthermore, the European Commission has become the world?s fifth largest donor of development aid - and therefore one of the most important - in the 1990?s. When total aid is looked at the ACP countries are disproportionally among those receiving the most foreign aid per capita in the world and hence the effects of European aid are of special relevance for them. The aim of this paper is therefore to investigate the effect European aid has on investment in the ACP countries. It contributes to the ongoing debate on aid effectiveness by arguing that the impact f aid does not only depend on the characteristics of the recipient but also of the donor. The EU-ACP Partnership Agreement could increase incentives for private investment in the ACP countries either through direct support measures or more indirectly through complementary spending for infrastructure and administration. The special private sector chapter in the Cotonou Agreement makes it visible that private sector support is a primary objective and brings the existing provisions into a more coherent and refined framework. However, given the limited funds that were available under the Lomé Conventions direct investment support cannot be expected to increase total investment considerably. The empirical findings show that total aid has a positive but declining effect on the share of gross domestic investment in GDP. The effect of aid from the European Commission on gross domestic investment seems to be smaller partly due to its allocation towards ACP countries with a relatively poor investment performance.

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  • Wolf, Susanna, 2002. "EU aid for ACP investment," HWWA Discussion Papers 192, Hamburg Institute of International Economics (HWWA).
  • Handle: RePEc:zbw:hwwadp:26129
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    1. Robert Lensink & Oliver Morrissey, 2000. "Aid instability as a measure of uncertainty and the positive impact of aid on growth," Journal of Development Studies, Taylor & Francis Journals, vol. 36(3), pages 31-49.
    2. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
    3. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2004. "On The Empirics of Foreign Aid and Growth," Economic Journal, Royal Economic Society, vol. 114(496), pages 191-216, June.
    4. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
    5. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
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