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Official Development Assistance and Foreign Direct Investment: An Empirical Investigation of Their Implications for Domestic Capital Formation in Africa

Author

Listed:
  • Zelealem Yiheyis

    (Department of Economics, Clark Atlanta University)

  • Emmanuel Cleeve

    (Department of Economics, Manchester Metropolitan University)

Abstract

This study assesses the relationship between official development assistance (ODA) and foreign direct investment (FDI) and the extent to which each influenced domestically financed capital formation (DFCF) in Africa. An empirical analysis using dynamic panel data estimation methods reveals that both FDI and ODA exerted independent and interactive effects on DFCF in the typical study country. We find that the effect of FDI on DFCF is generally negative, while that of ODA is positive. Whether ODA influenced FDI is observed to depend, in part, on whether the aid was committed to complementary or productive activities in the recipient countries.

Suggested Citation

  • Zelealem Yiheyis & Emmanuel Cleeve, 2018. "Official Development Assistance and Foreign Direct Investment: An Empirical Investigation of Their Implications for Domestic Capital Formation in Africa," Annals of Economics and Finance, Society for AEF, vol. 19(2), pages 625-651, November.
    • Handle: RePEc:cuf:journl:y:2018:v:19:i:2:yiheyis:cleeve
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    Citations

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    Cited by:

    1. Liu, Ailan & Wang, Zhixuan & Zhu, Pengcheng, 2021. "Does informal economy undermine the effects of China’s aid on its outward foreign direct investment?," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 315-329.

    More about this item

    Keywords

    Africa; Domestic investment; Dynamic GMM; Foreign direct investment; Official development assistance;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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