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Aid, Infrastructure, and FDI: Assessing the Transmission Channel with a New Index of Infrastructure

Author

Listed:
  • Julian Donaubauer
  • Birgit Meyer
  • Peter Nunnekamp

Abstract

We raise the hypothesis that aid specifically targeted at economic infrastructure helps developing countries attract higher FDI inflows through improving their endowment with infrastructure in transportation, communication, energy and finance. By performing 3SLS estimations we explicitly account for dependencies between three structural equations on the allocation of sector-specific aid, the determinants of infrastructure, and the determinants of FDI. We find fairly strong and robust evidence that targeted aid promotes FDI indirectly through the infrastructure channel. In addition, aid in infrastructure appears to have surprisingly strong direct effects on FDI.

Suggested Citation

  • Julian Donaubauer & Birgit Meyer & Peter Nunnekamp, 2015. "Aid, Infrastructure, and FDI: Assessing the Transmission Channel with a New Index of Infrastructure," FIW Working Paper series 144, FIW.
    • Handle: RePEc:wsr:wpaper:y:2015:i:144
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    References listed on IDEAS

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    Cited by:

    1. Kenneth Onye & Godwin Bassey & Alex Iriabije & Lionel Effiom, 2022. "Does aid matter for FDI in ECOWAS: Investigating the infrastructure channel," African Development Review, African Development Bank, vol. 34(1), pages 1-15, March.
    2. Donaubauer, Julian & Neumayer, Eric & Nunnenkamp, Peter, 2016. "Financial market development in host and source countries and its effects on bilateral FDI," Kiel Working Papers 2029, Kiel Institute for the World Economy (IfW Kiel).
    3. Julian Donaubauer & Peter Nunnenkamp, 2016. "Is Aid for Infrastructure Effective? A Difference-in-Difference-in-Differences Approach," Economics Bulletin, AccessEcon, vol. 36(2), pages 857-870.

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    More about this item

    Keywords

    aid effectiveness; sector-specific aid; foreign direct investment; infrastructure;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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