IDEAS home Printed from https://ideas.repec.org/a/taf/irapec/v29y2015i3p259-286.html
   My bibliography  Save this article

Re-examining the relationship between domestic investment and foreign aid: does political stability matter?

Author

Listed:
  • Nabamita Dutta
  • Deepraj Mukherjee
  • Sanjukta Roy

Abstract

While past studies had conflicting conclusions regarding the impact of foreign aid on growth and development of a nation, recent studies have tried to delve deeper into the question, 'what makes aid work?' (see, Dutta, Leeson, and Williamson, 2013; Burnside and Dollar, 2000, 2004; Svensson, 1999). This paper tests how political stability (vis-�-vis political instability) affects the relationship between domestic investment and foreign aid. Applying dynamic panel estimators, our results show that political stability affects aid's effectiveness on domestic capital formation. The paper considers alternative measures of political stability (vis-�-vis instability), focusing on the political characteristics of a system that have the potential to make a nation stable. Political stability affects policy selection by the government positively and, thus, public resources such as foreign aid are put to the desired use. The estimated marginal impacts show that foreign aid enhances domestic investment in the presence of a stable political climate, but there is a diminishing return to aid.

Suggested Citation

  • Nabamita Dutta & Deepraj Mukherjee & Sanjukta Roy, 2015. "Re-examining the relationship between domestic investment and foreign aid: does political stability matter?," International Review of Applied Economics, Taylor & Francis Journals, vol. 29(3), pages 259-286, May.
    • Handle: RePEc:taf:irapec:v:29:y:2015:i:3:p:259-286
    DOI: 10.1080/02692171.2014.945991
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/02692171.2014.945991
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/02692171.2014.945991?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bourguignon, François & Platteau, Jean-Philippe, 2012. "Does Aid Availability Affect Effectiveness in Reducing Poverty?," WIDER Working Paper Series 054, World Institute for Development Economic Research (UNU-WIDER).
    2. Alesina, Alberto & Perotti, Roberto, 1996. "Income distribution, political instability, and investment," European Economic Review, Elsevier, vol. 40(6), pages 1203-1228, June.
    3. François Bourguignon & Jean-Philippe Platteau, 2012. "Does Aid Availability Affect Effectiveness in Reducing Poverty?," WIDER Working Paper Series wp-2012-054, World Institute for Development Economic Research (UNU-WIDER).
    4. repec:unu:wpaper:wp2012-54 is not listed on IDEAS
    5. World Bank, 2011. "Regional Highlights World Development Indicators 2011," World Bank Publications - Books, The World Bank Group, number 27344.
    6. World Bank, 2011. "World Development Indicators 2011," World Bank Publications - Books, The World Bank Group, number 2315.
    7. World Bank, 2010. "World Development Indicators 2010," World Bank Publications - Books, The World Bank Group, number 4373.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tefera, Mamo G & Odhiambo, Nicholas M, 2022. "The impact of foreign aid on economic growth in Africa: Empirical evidence from low-income countries," Working Papers 29830, University of South Africa, Department of Economics.
    2. Amponsah, Mary & Agbola, Frank W. & Mahmood, Amir, 2023. "The relationship between poverty, income inequality and inclusive growth in Sub-Saharan Africa," Economic Modelling, Elsevier, vol. 126(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andreas Bergh & Irina Mirkina & Therese Nilsson, 2014. "Globalization and Institutional Quality-A Panel Data Analysis," Oxford Development Studies, Taylor & Francis Journals, vol. 42(3), pages 365-394, September.
    2. Ibrahim Ahmed Elbadawi & Raimundo Soto, 2013. "Fiscal Regimes In And Outside The Mena Region," Middle East Development Journal (MEDJ), World Scientific Publishing Co. Pte. Ltd., vol. 5(03), pages 1-25.
    3. Arvind Virmani, 2012. "India," Review of Market Integration, India Development Foundation, vol. 4(2), pages 159-195, August.
    4. Georg Hirte & Christian Lessmann, 2014. "Trade, Integration, and Interregional Inequality," CESifo Working Paper Series 4799, CESifo.
    5. Tohid Atashbar, 2013. "Iranian Disease: Why a Developing Country's Government Did Not Listen to Economists' Advices," American Journal of Economics and Sociology, Wiley Blackwell, vol. 72(3), pages 732-760, July.
    6. Georg Hirte & Christian Lessmann, 2014. "Trade and Interregional Inequality," ERSA conference papers ersa14p304, European Regional Science Association.
    7. Susanna M Makela & Rakhi Dandona & T R Dilip & Lalit Dandona, 2013. "Social Sector Expenditure and Child Mortality in India: A State-Level Analysis from 1997 to 2009," PLOS ONE, Public Library of Science, vol. 8(2), pages 1-10, February.
    8. R. Radhakrishna & C. Ravi, 2016. "Multidimensional Aspect of Child Poverty in India," Indian Journal of Human Development, , vol. 10(3), pages 302-316, December.
    9. Bertoli, Simone & Marchetta, Francesca, 2015. "Bringing It All Back Home – Return Migration and Fertility Choices," World Development, Elsevier, vol. 65(C), pages 27-40.
    10. Imai, Katsushi S. & Gaiha, Raghav & Thapa, Ganesh & Annim, Samuel Kobina, 2012. "Microfinance and Poverty—A Macro Perspective," World Development, Elsevier, vol. 40(8), pages 1675-1689.
    11. Alkire, Sabina & Santos, Maria Emma, 2014. "Measuring Acute Poverty in the Developing World: Robustness and Scope of the Multidimensional Poverty Index," World Development, Elsevier, vol. 59(C), pages 251-274.
    12. Cho, Seo-Young & Dreher, Axel & Neumayer, Eric, 2013. "Does Legalized Prostitution Increase Human Trafficking?," World Development, Elsevier, vol. 41(C), pages 67-82.
    13. Dina Pomeranz & José Vila-Belda, 2019. "Taking State-Capacity Research to the Field: Insights from Collaborations with Tax Authorities," Annual Review of Economics, Annual Reviews, vol. 11(1), pages 755-781, August.
    14. Elena Horská & Luboš Smutka & Mansoor Maitah, 2012. "The impacts of the global economic crisis on selected segments of the world trade in commodities," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 60(7), pages 101-110.
    15. Opfinger, Matthias & Gundlach, Erich, 2011. "Religiosity as a determinant of happiness," Open Access Publications from Kiel Institute for the World Economy 48360, Kiel Institute for the World Economy (IfW Kiel).
    16. Thomas Bossuroy & Denis Cogneau, 2013. "Social Mobility in Five African Countries," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 59, pages 84-110, October.
    17. Kristen Hudak, 2012. "What Next For Microfinance? How The Broader Financial Context Matters For Effective Microfinance Outreach," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 17(04), pages 1-18.
    18. Mohri, Hideyuki & Lahoti, Shruti & Saito, Osamu & Mahalingam, Anparasan & Gunatilleke, Nimal & Irham, & Hoang, Van Thang & Hitinayake, Gamini & Takeuchi, Kazuhiko & Herath, Srikantha, 2013. "Assessment of ecosystem services in homegarden systems in Indonesia, Sri Lanka, and Vietnam," Ecosystem Services, Elsevier, vol. 5(C), pages 124-136.
    19. Marchetta, Francesca, 2012. "Return Migration and the Survival of Entrepreneurial Activities in Egypt," World Development, Elsevier, vol. 40(10), pages 1999-2013.
    20. Wang, Miao & Feng, Chao, 2018. "Decomposing the change in energy consumption in China's nonferrous metal industry: An empirical analysis based on the LMDI method," Renewable and Sustainable Energy Reviews, Elsevier, vol. 82(P3), pages 2652-2663.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:irapec:v:29:y:2015:i:3:p:259-286. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/CIRA20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.