Does aid induce foreign direct investment: Updated evidence from a quasi-experiment
While the catalytic effect of aid on foreign direct investment (FDI) has long been an implicit consensus among many policymakers and practitioners, assessments of this causal relationship remain limited and are not always reliable. To mitigate this evidence gap, this study applies an instrumental va...
| Main Author: | |
|---|---|
| Format: | Journal Article |
| Language: | Inglés |
| Published: |
Oxford University Press
2025
|
| Subjects: | |
| Online Access: | https://hdl.handle.net/10568/151549 |
| _version_ | 1855535385779634176 |
|---|---|
| author | Tian, Junyan |
| author_browse | Tian, Junyan |
| author_facet | Tian, Junyan |
| author_sort | Tian, Junyan |
| collection | Repository of Agricultural Research Outputs (CGSpace) |
| description | While the catalytic effect of aid on foreign direct investment (FDI) has long been an implicit consensus among many policymakers and practitioners, assessments of this causal relationship remain limited and are not always reliable. To mitigate this evidence gap, this study applies an instrumental variable approach that leverages the graduation of the International Development Association (IDA) income threshold as a quasi-experiment to identify the causal linkage between foreign aid and FDI. The analysis reveals that a 1 percent drop in the ratio of aid to gross national income leads to a decline in FDI relative to gross domestic product by 0.9 percent in 42 developing countries from 1987 to 2019. In face of the aid shock induced by IDA graduation, governments in recipient countries restrict their financial policy openness, through which aid could significantly impact subsequent foreign private investment. Results emphasize the necessity of concerted policy interventions to mitigate this negative aid shock. |
| format | Journal Article |
| id | CGSpace151549 |
| institution | CGIAR Consortium |
| language | Inglés |
| publishDate | 2025 |
| publishDateRange | 2025 |
| publishDateSort | 2025 |
| publisher | Oxford University Press |
| publisherStr | Oxford University Press |
| record_format | dspace |
| spelling | CGSpace1515492025-10-26T12:55:35Z Does aid induce foreign direct investment: Updated evidence from a quasi-experiment Tian, Junyan foreign investment aid programmes policies development While the catalytic effect of aid on foreign direct investment (FDI) has long been an implicit consensus among many policymakers and practitioners, assessments of this causal relationship remain limited and are not always reliable. To mitigate this evidence gap, this study applies an instrumental variable approach that leverages the graduation of the International Development Association (IDA) income threshold as a quasi-experiment to identify the causal linkage between foreign aid and FDI. The analysis reveals that a 1 percent drop in the ratio of aid to gross national income leads to a decline in FDI relative to gross domestic product by 0.9 percent in 42 developing countries from 1987 to 2019. In face of the aid shock induced by IDA graduation, governments in recipient countries restrict their financial policy openness, through which aid could significantly impact subsequent foreign private investment. Results emphasize the necessity of concerted policy interventions to mitigate this negative aid shock. 2025-05-01 2024-08-06T14:20:13Z 2024-08-06T14:20:13Z Journal Article https://hdl.handle.net/10568/151549 en Limited Access Oxford University Press Tian, Junyan. 2025. Does aid induce foreign direct investment: Updated evidence from a quasi-experiment. World Bank Economic Review 39(2): 260–280. https://doi.org/10.1093/wber/lhae030 |
| spellingShingle | foreign investment aid programmes policies development Tian, Junyan Does aid induce foreign direct investment: Updated evidence from a quasi-experiment |
| title | Does aid induce foreign direct investment: Updated evidence from a quasi-experiment |
| title_full | Does aid induce foreign direct investment: Updated evidence from a quasi-experiment |
| title_fullStr | Does aid induce foreign direct investment: Updated evidence from a quasi-experiment |
| title_full_unstemmed | Does aid induce foreign direct investment: Updated evidence from a quasi-experiment |
| title_short | Does aid induce foreign direct investment: Updated evidence from a quasi-experiment |
| title_sort | does aid induce foreign direct investment updated evidence from a quasi experiment |
| topic | foreign investment aid programmes policies development |
| url | https://hdl.handle.net/10568/151549 |
| work_keys_str_mv | AT tianjunyan doesaidinduceforeigndirectinvestmentupdatedevidencefromaquasiexperiment |