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Official Development Assistance and Foreign Direct Investment and Their Implications for Domestic Capital Formation in Africa: An Empirical Investigation

Cleeve, Emmanuel and Yiheyis, Z (2018) Official Development Assistance and Foreign Direct Investment and Their Implications for Domestic Capital Formation in Africa: An Empirical Investigation. Annals of Economics and Finance. ISSN 1529-7373 (In Press)

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Abstract

This study assesses the relationship between Official development assistance (ODA) and foreign direct investment (FDI) and the extent to which each influenced domestically financed capital formation (DFCF) in Africa. An empirical analysis using dynamic panel data estimation methods reveals that both FDI and ODA exerted independent and interactive effects on DFCF in the typical study country. We find that the effect of FDI on DFCF is generally negative, while that of ODA is positive. Whether ODA influenced FDI is observed to depend, in part, on whether the aid was committed to complementary or productive activities in the recipient countries.

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