Re-examining the Relationship between Domestic Investment and Foreign Aid : Does Political Stability Matter?

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). T...

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Main Authors:	Dutta, Nabamita, Mukherjee, Deepraj, Roy, Sanjukta
Format:	Journal Article
Language:	en_US
Published:	Taylor and Francis 2015
Subjects:	capital accumulation foreign aid political stability
Online Access:	http://hdl.handle.net/10986/21609

id	okr-10986-21609
recordtype	oai_dc
spelling	okr-10986-216092021-04-23T14:04:03Z Re-examining the Relationship between Domestic Investment and Foreign Aid : Does Political Stability Matter? Dutta, Nabamita Mukherjee, Deepraj Roy, Sanjukta capital accumulation foreign aid political stability 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-à-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-à-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. 2015-03-17T20:27:57Z 2015-03-17T20:27:57Z 2015-02-23 Journal Article International Review of Applied Economics 0269-2171 http://hdl.handle.net/10986/21609 en_US CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Taylor and Francis Publications & Research Publications & Research :: Journal Article
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	en_US
topic	capital accumulation foreign aid political stability
spellingShingle	capital accumulation foreign aid political stability Dutta, Nabamita Mukherjee, Deepraj Roy, Sanjukta Re-examining the Relationship between Domestic Investment and Foreign Aid : Does Political Stability Matter?
description	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-à-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-à-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.
format	Journal Article
author	Dutta, Nabamita Mukherjee, Deepraj Roy, Sanjukta
author_facet	Dutta, Nabamita Mukherjee, Deepraj Roy, Sanjukta
author_sort	Dutta, Nabamita
title	Re-examining the Relationship between Domestic Investment and Foreign Aid : Does Political Stability Matter?
title_short	Re-examining the Relationship between Domestic Investment and Foreign Aid : Does Political Stability Matter?
title_full	Re-examining the Relationship between Domestic Investment and Foreign Aid : Does Political Stability Matter?
title_fullStr	Re-examining the Relationship between Domestic Investment and Foreign Aid : Does Political Stability Matter?
title_full_unstemmed	Re-examining the Relationship between Domestic Investment and Foreign Aid : Does Political Stability Matter?
title_sort	re-examining the relationship between domestic investment and foreign aid : does political stability matter?
publisher	Taylor and Francis
publishDate	2015
url	http://hdl.handle.net/10986/21609
_version_	1764448758811066368

Re-examining the Relationship between Domestic Investment and Foreign Aid : Does Political Stability Matter?

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