Dual-objective Donors and Investment across Economic Regions: Theory and Evidence

King Yoong Lim and Chunping Liu

NBS Discussion Papers in Economics from Economics, Nottingham Business School, Nottingham Trent University

Abstract: Based on a novel theoretical framework with a dual-objective donor giving grant (driven by benevolent objective) and loan aid (profitability motive), as well as a public private partnership-like investment structure and multi-region feedback mechanism, we estimate a panel structural VAR model of grant aid, loan aid, private consumption, and aggregate capital stock using data of nine economic communities/regions covering the 1961-2017 period. By allowing for cross-heterogeneity and interdependencies across regions, we identify empirical commonalities and differences across regions. Amidst a generally weak aid-investment link, we find loan aid to Granger-cause capital accumulation, and among African regions it is the most (least) productive-in terms of within- and spillover effects-in the IGAD (ECOWAS) region. In addition, our results suggest deeper regional integration between the Sub-Saharan African regions than the collective Latin American & Caribbean regions and the two Southern Asian regions (Southeast Asia and South Asia) examined.

Keywords: foreign aid; donor objectives; investment; regional integration; structural VAR. (search for similar items in EconPapers)
JEL-codes: F35 O40 P45 (search for similar items in EconPapers)
Date: 2021-01
New Economics Papers: this item is included in nep-fdg and nep-sea
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http://www.ntu.ac.uk/__data/assets/pdf_file/0032/1 ... ory-and-Evidence.pdf First version, 2021 (application/pdf)

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Journal Article: Aid and developing regional integration (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:nbs:wpaper:2021/01

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