This study contributes to previous empirical work on the effects of ODA
(Official Development Assistance) on FDI (Foreign Direct Investment) in
recipient countries by using newer versions of databases. The analysis of ODA
and FDI using new data is significant because some countries graduate from
recipient status. This study employs panel data over 18 years for 118
countries. Our estimations use econometric methods such as ordinary least
squares (OLS) and 2SLS (two-stage least squares). This study analyzes how
the governance quality of a recipient country enhances the role of ODA in
facilitating FDI inflows to the recipient country.
The findings of this study are threefold. First, we verify that the isolated
effect of ODA on FDI is positive and significant. Second, the regression results
show that the isolated effect of governance enhances the ODA effect on FDI.
Third, the regression results also show that the coefficient of the interaction terms between the governance and ODA per capita variables is positive and
statistically significant. This implies that ODA facilitate foreign private
investment only if the recipient country has a good governance system.
Tamkang Journal of International Affairs 20(3), pp.41-70