Panel Data Analysis of the Relation between Aid and FDI

This thesis applies a panel data approach with more than 100 countries to analyse the relation between aid and Foreign Direct Investments (FDI). While research on the effects of official development aid (ODA) as a whole is abundantly available, this thesis distinguishes itself by analysing the effects of aid flows that are intended for human capital, infrastructure or physical capital. Economic theory predicts a positive relation between human capital, infrastructure and FDI, and a negative relation between physical capital and FDI. It appears from the empirical analysis that the general relation between aid flows and FDI is not convincing. By dividing the sample into sub-samples according to income or location, it appears that the relation is strong in some specifications. This gives use to the conclusion that the aid-FDI relation is present in some cases and not in others, which means that local characteristics have a decisive influence on this relation.