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Re-Examining the Effects of Official Development Assistance on Foreign Direct Investment Applying the VAR Model

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  • Saori Ono

    (Graduate School of Advanced Integrated Studies in Human Survivability, Kyoto University, Kyoto 606-8306, Japan)

  • Takashi Sekiyama

    (Graduate School of Advanced Integrated Studies in Human Survivability, Kyoto University, Kyoto 606-8306, Japan)

Abstract

This study re-examined the effect of official development assistance (ODA) of five major donor countries (France, Germany, Japan, the United Kingdom, and the United States) on foreign direct investment (FDI) using panel data from 2003 to 2020. In addition to the system Generalized Method of Moments (GMM) with the gravity model, the Granger causality test and impulse response analysis with the panel VAR model was conducted. It was concluded that ODA did not necessarily have an effect on FDI since the 2000s. It is also suggested that the vanguard effect of Japanese ODA, as indicated by some previous studies, appeared mainly in the 1990s and may not be sustainable. The novelty of this study is to verify the effects of the ODA of major donors on FDI using new data from the 2000s onward, especially to reveal that the vanguard effect of Japanese ODA has not been observed since the 2000s. A limitation of this study is to determine only the presence or absence of a general trend at a statistically significant level. Therefore, further research on individual cases is expected to find how ODA has affected the investment decisions of individual companies.

Suggested Citation

  • Saori Ono & Takashi Sekiyama, 2022. "Re-Examining the Effects of Official Development Assistance on Foreign Direct Investment Applying the VAR Model," Economies, MDPI, vol. 10(10), pages 1-20, September.
    • Handle: RePEc:gam:jecomi:v:10:y:2022:i:10:p:236-:d:923317
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    References listed on IDEAS

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    Cited by:

    1. Jeunghan Lee & Keuntae Cho, 2023. "Effects of Science, Technology, and Innovation Official Development Assistance on Foreign Direct Investment in Developing Countries," Sustainability, MDPI, vol. 15(16), pages 1-13, August.
    2. Scalamonti, Francesco, 2024. "The foreign investments-growth nexus in underdeveloped countries: the state-of-art of research analysing a selected and recent empirical literature (2020-2022)," Technological Forecasting and Social Change, Elsevier, vol. 198(C).

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