Aid effectiveness: when aid spurs investment

This study examines the long-run relationship between foreign aid, poverty, and income inequality in 27 least developed countries across Sub-Saharan Africa (SSA), South Asia, East Asia, Western Asia, and Latin America over the period 1990–2011. Using an unbalanced panel dataset, the study applies the Dynamic Ordinary Least Squares (DOLS) estimator to account for potential endogeneity and serial correlation in the presence of integrated variables. Panel unit root and cointegration tests are conducted prior to estimation. The study findings indicate that foreign aid has a statistically significant effect on poverty and inequality; however, its redistributive impact is conditional on the quality of governance. Specifically, in Sub-Saharan African countries with weak corruption control, the effect of aid on inequality is minimal. Conversely, when governance quality improves, foreign aid exhibits a stronger equalizing effect. These findings suggest that the effectiveness of aid in reducing poverty and inequality depends critically on institutional quality and anti-corruption mechanisms. The study highlights the importance of strengthening governance frameworks to enhance the developmental impact of foreign assistance.

Introduction More than a decade ago, the World Bank argued that “underlying the litany of Africa’s development problems is a crisis of governance.” Poor quality institutions, weak rule of law, an absence of accountability, tight controls over information, and high levels of corruption still characterize many African states today. Aid levels have been reduced in many parts of Africa during the past decade. Yet in many of the countries with poor governance records, aid continues to contribute a very high percentage of government budgets. This article explores the institutional impact of these high levels of aid and the way that large amounts of aid are delivered. There are many reasons why governance is poor in much of sub-Saharan Africa. Colonialism did little to develop strong, indigenously rooted institutions that could tackle the development demands of modern states. Economic crisis and unsustainable debt, civil wars, and political instability have all taken their toll over the past 2 decades and more. It is difficult to separate the impact of these problems from the possible impact of foreign aid, which is often high in countries that suffer from precisely these problems. Theory provides conflicting guidance here. On the one hand, aid can release governments from binding revenue constraints, enabling them to strengthen domestic institutions and pay higher salaries to civil servants. Aid can provide training and technical assistance to build legal systems and accounting offices. In many countries, aid personnel (sometimes expatriate) manage important government programs, and the infusion of resources and technical assistance can give an important boost to the efficiency and effectiveness of governance, if only in a partial sense. Yet despite these likely benefits, it is also possible that, continued over

Foreign Capital Inflows are often considered the key instruments in combating poverty and income inequality in countries around the world. To what extent does governance influence the relationship between foreign aid, Foreign direct investment (FDI) and income inequality in MENA countries? To answer this question, this study investigates the effects of foreign aid, FDI on income inequality and the moderating role of institutional quality in 15 MENA countries over the period 1996–2023, using the Arellano–Bond estimator of the two-stage GMM system in order to overcome endogeneity biais. The results indicate two important conclusions. First, the findings show that both FDI and foreign aid contribute to increasing income inequality in the MENA region. Second, governance plays a moderator role between these variables. In order to maximize the benefits of foreign aid and FDI while reducing inequality, MENA countries need to strengthen their good governance policies.

Vietnam, an emerging Southeast Asian economy, confronts the dual challenge of pursuing economic growth while ensuring environmental sustainability. In response to global efforts to mitigate CO 2 emissions, various governments have implemented various policies. The article aims to investigate the intricate relationship between innovation, renewable energy consumption (REC), foreign direct investment (FDI), gross domestic product (GDP), and CO 2 emissions in Vietnam. Using annual data from 2000 to 2023, we employ the Autoregressive Distributed Lag (ARDL) approach to analyze both short-term and long-term dynamics among these variables. Our empirical findings reveal that innovation and REC significantly reduce CO 2 emissions in the long run. At the same time, FDI shows a nuanced impact, promoting economic growth and contributing to higher emissions depending on the type and regulation of investments. Annual data from 2000 to 2023, obtained from Vietnam's General Statistics Office, the International Monetary Fund, and the World Bank, were utilized for this analysis. Empirical findings indicate that innovation contributes positively to carbon dioxide emissions in Vietnam, whereas REC is associated with a reduction in environmental degradation. On the other hand, both FDI inflows and economic development are significantly positively correlated with environmental pollution. The results underscore the importance of fostering innovation and expanding renewable energy to achieve sustainable economic growth. Policy implications suggest promoting clean technology, creating favorable conditions for sustainable FDI, and diversifying the economy to mitigate environmental impacts. This article explores the intricate relationships between innovation, renewable energy usage, FDI, GDP growth, and CO 2 emissions in Vietnam. By integrating empirical analysis with a review of existing literature, the article provides insights into the dynamic interactions among these variables and proposes policy recommendations for sustainable development in Vietnam. Ultimately, this research offers essential recommendations to support Vietnam in cultivating a green and sustainable economy during the Fifth Industrial Revolution era.

PurposeThe purpose of this paper is to examine the relationship between foreign aid and income inequality (IIQ) reduction for 16 African countries using unbalanced panel data covering the period 1990–2011. This paper attempts to answer the critical question: does foreign aid lead to IIQ reduction?Design/methodology/approachTo examine the effect of foreign aid on IIQ, this paper uses an RE model with robust OLS regression and system-GMM estimator, which are useful in dealing with the endogeneity problems.FindingsResults of RE model indicate that foreign aid, foreign direct investment, trade openness as well as corruption have a positive and statistically significant effect on IIQ. Government spending and inflation have a negative and statistically significant effect on IIQ, while GDP per capita growth has a negative but statistically insignificant relationship with IIQ. The results are robust by using system-GMM dynamic panel model which confirms that the coefficients of all considered variables remain same sign and significance.Research limitations/implicationsThis study implies that an increase in foreign aid is associated with an increase in IIQ. As an effective strategy to foreign aid, this paper suggests that improving of financial sector development, and institutional quality and policies can reduce income inequalities and stimulate economic growth.Originality/valueThis paper is the first of its kind to empirically explore the relationship between IIQ and foreign aid measured here by net aid transfers as a share of GDP in African countries, using modern econometric techniques, time period and a variety of control variables.

Exploring the economic-environmental nexus is important for devising effective economic policies, particularly for small, resource-constrained emerging nations with evolving institutional quality (IQ). This study examines the impact of economic growth (EG), foreign direct investment (FDI), trade openness (TO), and IQ on CO2 emissions in Comoros from 1990 to 2022. The study employs the autoregressive distributed lag (ARDL) approach to ascertain the short-term and long-term effects. Further, dynamic ordinary least squares (DOLS) and fully modified ordinary least squares (FMOLS) regression approaches are used for robust interpretations. The study finds a long-run cointegration among the variables. The estimation further reveals that TO deteriorates, while FDI enhances, and the impact of EG on environmental quality is statistically insignificant. Contrary to our expectations, IQ worsens the environmental quality in the long run, reflecting weak environmental regulations. Based on these empirical results, the study concludes that the economic-environmental nexus results in environmental degradation in Comoros, advising regulators to reduce harmful trade and exercise rigorous control in implementing environmental regulations to achieve environmental sustainability.

This study's goal is to examine the connection between foreign direct investment (FDI) and Corruption Perception Index (CPI) in ASEAN-5 including the Philippines, Indonesia, Malaysia, Thailand, and Vietnam, during the period 2001-2019. Furthermore, we examine the link between FDI and macroeconomics variables, such as Gross Domestic Product (GDP) and Interest Rates. Panel data with a fixed effect model (FEM) are used in this investigation to examine the relationship between variables. The findings of this investigation suggest that the corruption perception index and gross domestic product have an impact on foreign direct investment that is both positive and significant. Meanwhile, foreign direct investment is significantly and negatively impacted by interest rates.

This study aims to analyze how institutional quality and financial stability influence foreign direct investment (FDI) in Asian countries, examining differences across country income groups. This study utilizes data from 39 Asian countries spanning the years 2013 to 2021. The analytical tool used is the Generalized Method of Moments (GMM), consisting of first-difference GMM and system GMM. Furthermore, this study uses principal component analysis (PCA) to calculate composite variables related to the institutional quality index. The results show that institutional quality and financial stability have a positive overall impact on FDI in Asian countries. However, the impact varies depending on the country's level of income. Institutional quality has a more significant impact in high-income countries, while in lower-middle-income countries, economic growth is the primary determinant of FDI. These findings emphasize the importance of improving governance and financial stability in attracting foreign investment. Governments, particularly in lower-middle-income countries, need to strengthen law enforcement, reduce corruption, maintain political stability, and create regulations that support an investment climate to make it more attractive to foreign investors

This paper examines the influence of key economic variables—gross domestic product (GDP), foreign direct investment (FDI), environmental tax revenues (ETR), and natural resource rents (NRR)—on progress toward the Sustainable Development Goals (SDGs) in Sub-Saharan Africa (SSA) for the period 2010–2023. To reflect the complex and multidimensional nature of sustainability, financial development (FD) and institutional quality (IQ) are included as control variables. Financial development (FD) and institutional quality (IQ) are included as control variables to capture the complex nature of sustainability. The empirical analysis employs fixed-effects panel models with Driscoll–Kraay standard errors to account for heteroscedasticity, autocorrelation, and cross-sectional dependence. To address potential endogeneity and dynamic relationships, the two-step system Generalized Method of Moments (System GMM) estimator is applied as a robustness check. The results indicate that GDP, ETR, and FD have statistically significant positive effects on overall SDG performance, while FDI inflows, NRR, and weak IQ exert substantial adverse impacts. Disaggregated findings show that GDP enhances progress on social and economic goals, but is insufficient to address environmental and institutional dimensions. ETR contributes positively to climate action, industrial development, and well-being, but negatively affects SDG 15 (life on land). FDI and NRR are associated with negative externalities, supporting the pollution haven and resource curse hypotheses. This paper is the first to assess the impact of these variables across all 17 SDGs in SSA, offering new insights into the region’s development dynamics. It provides critical implications for designing integrated policy strategies aimed at fostering inclusive growth, environmental sustainability, and institutional reform in alignment with the 2030 Agenda.

The interaction of foreign aid and foreign direct investment is an important issue for developing countries in Africa. I probe into the mediating role of institutional quality and financial development using a panel data set of 47 countries over the period 1996–2016. I find that the effectiveness of foreign aid in attracting foreign direct investment is greater in countries with better institutional quality and sound financial development. The implications for policy are outlined.

Foreign direct investment (FDI) is a process that starts at a point in time and may end over time or continue uninterrupted throughout the observation period. Certain economic conditions may incline investors to divest by liquidating a business entity or selling their shares in the company in which the FDIs were made. Therefore, this is an analogy with the occurrence of censored cases, which allows for the use of survival analysis tools in the examination of the duration of FDIs. The aim of this article was to compare the patterns of ‘survival’ of foreign direct investments in individual Visegrad Group countries based on the relevant tables showing ‘the duration of FDIs’ and the survival curves obtained using the Kaplan-Meier estimator according to the criteria of sector and country of origin of the foreign capital. The Cox proportional hazards model was used to model the risk of foreign divestment. Based on the results obtained, the rate of decline in the cumulative probability of FDI survival shows differences between countries; FDI survival medians also vary across countries. In particular, it is demonstrated that the highest probability of foreign direct divestment in Poland applies to projects which are approximately 13.5 to 15 years long. In Czechia, this concerns projects which are approximately 18 to 21 years old, while in Slovakia and Hungary it is projects which are longer than 21. The study also shows that in all Visegrad countries, FDIs with German capital lasted the shortest, while projects with French capital lasted the longest (in the Czech Republic, Poland, and Hungary). In the majority of the Visegrad Group countries, the highest risk of divestment is typical of projects in sectors other than industrial processing and financial, insurance and other services. The data for the computations are from the Orbis and Zephir databases.

The study sheds light on the subtle interactions among financial development, foreign direct investment (FDI), and the quality of regulatory frameworks, with particular reference to their deep influence on renewable energy use and carbon emissions across 22 developed countries from 2002–2021. The results show an interesting tendency: Financial development and FDI will reduce reliance on renewable energy, whereas a significant increase in GDP per capita will increase reliance. Secondly, carbon emissions have a negative association with the adoption of renewable energy and financial development, though both reduce environmental quality; there is a positive relation between real gross domestic product (GDP) and energy depletion in terms of these toxic emissions. The significant role of regulatory quality as a moderator in this process is particularly striking. There is a direct correlation between financial stability and more robust regulation, resulting in reduced financial liquidity available for investing in renewable projects and restricting the free flow of clean FDI. Crucially, the paper argues that when combined with strong regulation, FDI is more likely to contribute to reductions in emissions, while FYGD, nevertheless regulated at a high level of quality, should raise emissions. Winding up, the result indicates that neither financial depth nor institutional quality, in isolation, is sufficient to deliver significant environmental improvement. Thus, it is urgent to adopt sound green finance policies and to formulate focused regulatory systems that integrate financial development and foreign direct investment with a broader sustainability agenda.

This article examines the impact of remittances on the Ukraine’s gross domestic product (GDP). It compares the volumes of remittances and foreign direct investment as a component of GDP and assesses how remittances are utilized. This study uses official data and materials from the State Statistics Service of Ukraine, the National Bank of Ukraine, and several international organizations. It applies general scientific methods (analysis, synthesis, generalization, comparison) and special methods, including economic and statistical analysis, correlation and regression analysis, as well as econometric tools. The study estimates the impact of remittances on GDP through consumption and investment. Using R software, the analysis models the effects of remittances and foreign direct investment on GDP. It also measures the correlation between independent variables (remittances and foreign direct investment) and evaluates their respective impacts on GDP. The study tests the adequacy of the model and estimates how a USD 1 billion change in remittances or foreign direct investment affects GDP. The study’s relevance lies in the significant role remittances play in GDP formation and economic stability, especially during economic crises. The findings show that remittances are a vital source of financial inflows, primarily supporting consumer demand. The research’s novelty comes from its innovative approach, combining both quantitative and qualitative analyses of remittances concerning to economic indicators. The main findings indicate that most remittances come from migrant workers. Official statistics do not fully reflect the scale of permanent emigration, and data on labor migration are fragmentary, complicating analysis. Remittances drive growth in consumer demand and investment, both components of GDP, according to its calculation formula. Migrant remittances are largely allocated to consumer spending, while the share of funds invested in business development is minimal. In recent years, remittances have mostly grown, surpassing foreign direct investment despite global and regional shocks. Both remittances and foreign direct investment contribute to GDP growth. After 2014, changes in migration patterns increased the share of informal remittances.

The study here analyzes the linkage between natural resource rent (NRR), financial inclusion, and carbon emissions taking foreign direct investment (FDI) and institutional quality as control variables in the emerging (E7) and developed (G7) economies during 2004–2021. Fully modified ordinary least squares (FMOLS) techniques and dynamic ordinary least squares (DOLS) are applied for estimating the model and the method of moments quantile regression (MMQR) is used for checking the robustness of the results. Findings indicated that NRR depicted a positive impact on carbon emissions in both emerging and developed economies and financial inclusion showed a negative impact on carbon emissions in emerging economies but lacked statistical significance with respect to developed economies. FDI inflows depicted a positive impact on carbon emissions with respect to all the economies taken together and with respect to institutional quality there was a varied impact of institutional factors on carbon emissions in both E7 and G7 nations. In order to lower carbon emissions, the policymakers should prioritize the establishment of regulatory frameworks that promote the delivery of sustainable financial services. They should focus on the enhancement of institutional quality and reduce the dependence on resource rents derived from fossil fuels.

This study examines the impact of human development on economic growth in the Middle East and North Africa (MENA) region amidst evolving socioeconomic challenges using panel data from 18 countries over the period 2010–2021. Human development is captured by the Human Development Index (HDI), while economic growth is proxied by gross domestic product (GDP). To address the autocorrelation inherent in the sample panel data and the instability of socioeconomic systems, the analysis employs feasible generalized least squares (FGLS) and panel-corrected standard errors (PCSE) estimators, which demonstrated high explanatory power. The empirical results reveal a robust and statistically significant positive relationship between HDI and economic growth, highlighting the central role of investments in health, education, and living standards in fostering long-term economic performance as a strategy for overcoming regional socioeconomic challenges, consistent with endogenous growth theory. Among the control variables, labor force size contributes positively to growth, while inflation and gross fixed capital formation exhibit significant negative effects, suggesting structural inefficiencies, macroeconomic instability, and potential socioeconomic challenges in the region. Foreign direct investment (FDI) shows a negative association with growth in certain specifications, whereas trade openness is found to be statistically insignificant. Overall, the findings underscore the importance of prioritizing human development and institutional quality over reliance on traditional growth drivers to navigate contemporary socioeconomic challenges. The study provides policy-relevant insights for promoting sustainable and inclusive growth and enhancing the resilience of socioeconomic systems in the MENA region.