On 11th November 2019 (1-2pm) Dr. Birgit Meyer, assistant professor at the Vienna University of Economics and Business, will give a presentation about “Does foreign aid help improve access to FDI?” in Q4.245. Afterwards, Ms. Meyer will be available for questions and discussions. Her presentation is part of: https://wiwi.uni-paderborn.de/dep1/me/research/discussing-research/seam/
Allocated where it is needed most, aid has the potential to stimulate learning-by-doing processes in trading and business procedures, and foster the market environment and, thereby, diffuse benefits related to foreign direct investments to countries that have remained on the side lines so far. Using a micro-founded structural gravity framework for FDI analogous to the trade gravity model, we explicitly look at the dyadic effects of aid on FDI stocks from 1990-2013 for all recipient and donor pairs. In particular aid for infrastructure, trade policies and post-primary education increase FDI stocks of aid recipients. Further, using a two-step estimation approach, we identify investment frictions of donors in recipient countries and evaluate whether aid target at these investment frictions helps to mitigate the perceived country risks of investors. We show that aid in hard and soft infrastructure reduces investment frictions of the respective donor country and reduces average investment barriers of the respective recipient from all other countries. Additionally, we show, that aid from China is more focus on bilateral perceived investment risk in the respective recipient country and has a stronger direct impact on bilateral FDI stocks compared to aid from traditional donors.