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Aid and Capital Investment - Effects of sector allocated aid on firm-level investment in the Least Developed Countries

Johansson, Kristoffer LU (2016) NEKH03 20161
Department of Economics
Abstract
This paper explores the impact of foreign aid on firm investment in physical capital using a dataset of 10 783 firms in 21 of the least developed countries. Using data from the World Bank Enterprise Surveys combined with sector allocated Official Development Assistance obtained from OECD CRS, no significant effect of aid was found. Fixed effects for country, sector and year did not change this result, nor did country clustered standard errors. The result is robust to various checks and the benchmark logit model passed both the linktest and the Hosmer-Lemeshow test for model specification and goodness-of-fit. Possible indirect effects of aid were investigated and aid was found to neither affect institutional quality nor infrastructure. The... (More)
This paper explores the impact of foreign aid on firm investment in physical capital using a dataset of 10 783 firms in 21 of the least developed countries. Using data from the World Bank Enterprise Surveys combined with sector allocated Official Development Assistance obtained from OECD CRS, no significant effect of aid was found. Fixed effects for country, sector and year did not change this result, nor did country clustered standard errors. The result is robust to various checks and the benchmark logit model passed both the linktest and the Hosmer-Lemeshow test for model specification and goodness-of-fit. Possible indirect effects of aid were investigated and aid was found to neither affect institutional quality nor infrastructure. The failure to find indirect effects of aid on firm capital investment by positively or negatively affecting investment climate through institutions and infrastructure supports the result of the benchmark regression, that aid does not have a significant effect on firm capital investment. (Less)
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author
Johansson, Kristoffer LU
supervisor
organization
course
NEKH03 20161
year
type
M2 - Bachelor Degree
subject
keywords
Foreign aid, Official Development Assistance, Firm capital investment, Constraints to private sector, Least Developed Countries
language
English
id
8876494
date added to LUP
2016-06-23 12:56:05
date last changed
2016-06-23 12:56:05
@misc{8876494,
  abstract     = {This paper explores the impact of foreign aid on firm investment in physical capital using a dataset of 10 783 firms in 21 of the least developed countries. Using data from the World Bank Enterprise Surveys combined with sector allocated Official Development Assistance obtained from OECD CRS, no significant effect of aid was found. Fixed effects for country, sector and year did not change this result, nor did country clustered standard errors. The result is robust to various checks and the benchmark logit model passed both the linktest and the Hosmer-Lemeshow test for model specification and goodness-of-fit. Possible indirect effects of aid were investigated and aid was found to neither affect institutional quality nor infrastructure. The failure to find indirect effects of aid on firm capital investment by positively or negatively affecting investment climate through institutions and infrastructure supports the result of the benchmark regression, that aid does not have a significant effect on firm capital investment.},
  author       = {Johansson, Kristoffer},
  keyword      = {Foreign aid,Official Development Assistance,Firm capital investment,Constraints to private sector,Least Developed Countries},
  language     = {eng},
  note         = {Student Paper},
  title        = {Aid and Capital Investment - Effects of sector allocated aid on firm-level investment in the Least Developed Countries},
  year         = {2016},
}