|Dr. Hassen Wako
Financing Development from External Sources: Essays on Aid, FDI and Trade
Théophile T. Azomahou and Mbaye Diene
This dissertation is an empirical investigation into the interaction between institutions, economic globalisation and development. It looks beyond the growth effect of aid and FDI in the context of Sub-Saharan Africa (SSA), and the role of institutions in explaining comparative advantage. The first paper examines the institutional and growth effects of development aid. The long-run growth effect of (aggregate) aid from ‘traditional’ donors is robustly non-positive, and the indirect effect is negative. Disaggregation reveals donor-heterogeneity. Chinese aid outperforms aggregate aid from traditional donors with respect to growth; however, it has a negative institutional effect. Recipient-heterogeneity is largely a short-run phenomenon. The second paper deals with the empirical association between FDI and some macroeconomic variables in the context of Sub-Saharan Africa. Economic growth enhances institutional quality, whereas FDI appears to raise corruption and undermine the rule of law and accountability. While most results are in agreement with some previous studies, the study also identifies detrimental institutional and deindustrializing effects of FDI which have hitherto been overlooked. The final paper assesses the influence of institutions on comparative advantage. The findings indicate that institutions are robust sources of comparative advantage. Developed regions reap the benefit of institutional reforms through both margins whereas developing regions benefit more from the extensive margin. The benefits to developing regions come more from trade within their regions than their trade vis-à-vis the developed regions.