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The foreign aid–foreign direct investment relationship in Africa: The mediating role of institutional quality and financial development
Author(s) -
Aluko Olufemi Adewale
Publication year - 2020
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.12386
Subject(s) - foreign direct investment , quality (philosophy) , developing country , panel data , business , investment (military) , international economics , economics , finance , economic growth , political science , macroeconomics , philosophy , epistemology , politics , law , econometrics
The interaction of foreign aid and foreign direct investment is an important issue for developing countries in Africa. I probe into the mediating role of institutional quality and financial development using a panel data set of 47 countries over the period 1996–2016. I find that the effectiveness of foreign aid in attracting foreign direct investment is greater in countries with better institutional quality and sound financial development. The implications for policy are outlined.