Testing the Impact of Foreign Aid and Aid Uncertainty on Private Investment in West Africa

The paper examines the impact of foreign aid on private investment in West Africa and whether multilateral and bilateral aid affects private investment differently.

Author: Eberechukwu Uneze

Publication Date: September, 2010

JEL Classification: E22; F35; C33

Key words: Foreign Aid; Investment; Fixed Effects

Document Size: 24 pages

Drawing on the vast literature on aid allocation this paper examines whether foreign aid has any impact on private investment in West Africa when other determinants of private investment are taken into account. Following from this, the paper investigates whether multilateral aid and bilateral aid affect private investment differently. In a related analysis the paper examines the impact of aid uncertainty on private investment. The results show that multilateral aid affects private investment positively, but not bilateral aid, and uncertainty, measured as the coefficient of variation has a negative impact on private investment and therefore reduces the impact of aid on domestic private investment.