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Foreign aid and private investment in developing economies

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  • Donald W. Snyder

    (School of Economics and Business Administration, Saint Mary's College, Moraga, CA 94575, USA)

Abstract

The effect of aid on private-sector investment has long been a matter of debate. Many economists have taken the position that aid stimulates private investment in LDCs by filling macroeconomic savings or foreign-exchange gaps. Others have countered that aid has a negative effect on private investment because it is often wasted or counterproductive, generates dutch-disease effects, and enables the central government to compete resources away from the private sector. This paper empirically evaluates the association between aid and private investment using annual panel data from 36 developing countries over the period 1977 to 1991. The results clearly show that countries which receive larger aid allocations experience lower subsequent levels of private investment.

Suggested Citation

  • Donald W. Snyder, 1996. "Foreign aid and private investment in developing economies," Journal of International Development, John Wiley & Sons, Ltd., vol. 8(6), pages 735-745.
    • Handle: RePEc:wly:jintdv:v:8:y:1996:i:6:p:735-745
    DOI: 10.1002/(SICI)1099-1328(199611)8:6<735::AID-JID345>3.0.CO;2-8
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    References listed on IDEAS

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    1. Joshua Greene & Delano Villanueva, 1991. "Private Investment in Developing Countries: An Empirical Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 33-58, March.
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    Cited by:

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    3. Simplice Asongu & Mohamed Jellal, 2016. "Foreign Aid Fiscal Policy: Theory and Evidence," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 58(2), pages 279-314, June.
    4. Baban Hasnat & Charles Callahan, III & Dal Didia, 1999. "Foreign Capital, Market Mechanism, and Economic Growth in Developing Countries," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 15(Fall 1999), pages 124-135.
    5. Dierk Herzer & Oliver Morrissey, 2009. "The Long-Run Effect of Aid on Domestic Output," Discussion Papers 09/01, University of Nottingham, CREDIT.
    6. Kevin Sylwester, 2008. "Foreign Aid and Urbanization in Developing Countries," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 7(2), pages 153-166, August.
    7. Ranjan Kumar Dash & Deepa Jitendra Gupta & Tarun Khandelwal, 2024. "Revisited the role of foreign aid in capital formation: experience of South Asian countries," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-12, December.

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