Foreign aid, investment and fiscal policy behavior: theory and empirical evidence

Simplice Asongu and Mohamed Jellal ()

No 14/030, Working Papers of the African Governance and Development Institute. from African Governance and Development Institute.

Abstract: The paper provides theoretical and empirical justifications for the instrumentality of foreign aid in stimulating private investment and fixed capital formation through fiscal policy mechanisms. We propose an endogenous growth theory based on an extension of Barro (1990) by postulating that the positive effect of aid mitigates the burden of the taxation system on the private sector of recipient countries. The empirical validity is based on 53 African countries for the period 1996-2010. While the findings on the tax effort channel are overwhelmingly consistent with theory across specifications and fundamental characteristics, those of the government expenditure channel are a little heterogeneous but broadly in line with the theoretical postulations. Justification for the slight heterogeneity and policy implications are discussed.

Keywords: Foreign Aid; Political Economy; Development; Africa (search for similar items in EconPapers)
JEL-codes: B20 F35 F50 O10 O55 (search for similar items in EconPapers)
Pages: 37
Date: 2014-06
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.afridev.org/RePEc/agd/agd-wpaper/Foreig ... pirical-evidence.pdf Revised version, 2014 (application/pdf)

Related works:
Working Paper: Foreign aid, investment and fiscal policy behavior: theory and empirical evidence (2014)
Working Paper: Foreign aid, investment and fiscal policy behavior: theory and empirical evidence (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:agd:wpaper:14/030

Access Statistics for this paper

More papers in Working Papers of the African Governance and Development Institute. from African Governance and Development Institute. Contact information at EDIRC.
Bibliographic data for series maintained by Asongu Simplice ().