Foreign Aid and the Real Price of Investments

34 Pages Posted: 5 Nov 2009

See all articles by Christian Bjørnskov

Christian Bjørnskov

Aarhus University - Department of Economics and Business; Research Institute of Industrial Economics (IFN); Center for Political Studies; Institute for Corruption Studies

Date Written: November 5, 2009

Abstract

This paper outlines how inflows of foreign aid might push up the real price of investments and thus crowd out private investments. The main implication - that aid leads to increasing real investment prices - finds substantial support in panel estimates from 78 developing countries. The effects appear larger in more recent years while they are stronger in countries close to the equator, with low incomes, and with large government sectors. The paper concludes by discussing the relevance of these findings for future development policy.

Suggested Citation

Bjørnskov, Christian, Foreign Aid and the Real Price of Investments (November 5, 2009). Available at SSRN: https://ssrn.com/abstract=1500536 or http://dx.doi.org/10.2139/ssrn.1500536

Christian Bjørnskov (Contact Author)

Aarhus University - Department of Economics and Business ( email )

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Denmark

Research Institute of Industrial Economics (IFN) ( email )

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Center for Political Studies

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Institute for Corruption Studies

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