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Can Development Aid Help Promote Foreign Direct Investment? Evidence from Central Asia
Author(s) -
Arazmuradov Annageldy
Publication year - 2015
Publication title -
economic affairs
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.24
H-Index - 18
eISSN - 1468-0270
pISSN - 0265-0665
DOI - 10.1111/ecaf.12102
Subject(s) - foreign direct investment , crowding out , economics , aid effectiveness , international economics , monetary economics , development aid , investment (military) , capital (architecture) , business , developing country , macroeconomics , economic growth , political science , geography , archaeology , politics , law
There is a continuing debate on the effectiveness of development aid. One less obvious angle on this issue is the question of the likely impact of aid on foreign direct investment ( FDI ). This paper tests whether aid had any impact on incoming FDI in Central A sian economies during the period 1993–2008. A simple panel model suggests that (a) aid had a moderate complementary effect on inward FDI , (b) there was a crowding‐out effect such that domestic investment reduced FDI stocks, (c) natural resources were a key attraction for private capital, and (d) increases in development aid offset the crowding‐out effect of domestic capital on FDI . It is argued that donors should target aid to enhance the climate for inward investment.