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Title:Aid, Governance, and Private Foreign Investment: Some Puzzling Findings and a Possible Explanation PDF Logo
Authors:Harms, Philipp
Lutz, Matthias
Issue Date:2003
Series/Report no.:HWWA Discussion Paper 246
Abstract:Does official aid pave the road for private foreign investment or does it suffocate private initiative by diverting resources towards unproductive activities? In this paper we explore this question using data for a large number of developing and emerging economies. Controlling for countries? institutional environment, we find that, evaluated at the mean, the marginal effect of aid on private foreign investment is close to zero. Surprisingly, however, the effect is strictly positive for countries in which private agents face a substantial regulatory burden. After testing the robustness of this result, we offer a theoretical model that is able to rationalize our puzzling observation.
Subjects:Aid
Foreign Direct Investment
Institutions
JEL:F21
F35
O19
O16
Document Type:Working Paper
Appears in Collections:HWWA Discussion Paper, Hamburgisches Welt-Wirtschafts-Archiv

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