Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
10486120 | World Development | 2012 | 22 Pages |
Abstract
We examine the idea that aid and foreign direct investment (FDI) are complementary sources of foreign capital. We argue that the relationship between aid and FDI is theoretically ambiguous: aid raises the marginal productivity of capital when used to finance complementary inputs (like public infrastructure and human capital investments), but aid may crowd out private investments when it comes in the shape of pure physical capital transfers. Empirically, we find that aid invested in complementary inputs draws in FDI, while aid invested in physical capital crowds it out. The paper shows that the composition of aid matters for its overall level of efficiency.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Pablo Selaya, Eva Rytter Sunesen,