CEU Electronic Theses and Dissertations, 2015
| Author | Virágh, Tímea Henriett |
|---|---|
| Title | Foreign Development Aid and Firm Performance: Is There A Connection? |
| Summary | This thesis investigates the effect of foreign development assistance with a novel approach. Research so far has been looking at the aggregate effect of aid on growth, and found no clear evidence that countries receiving more aid grow at higher rates. This thesis does not target aggregate growth, it identifies the business environment as a channel through which foreign assistance can have a positive impact, and firm performance as an outcome that could be enhanced by it. In many developing countries, the business environment is not advanced and firms often have access to insufficient financial services. Aid money could be used either to amend the business environment or could be directed from the central budget towards firms as special loans or grants. This way, firms could overcome the market imperfections they face and by investing more, they could produce more, employ more people and boost consumption. In the analysis, data on firms' real annual sales growth from the World Bank's Enterprise Surveys and total Official Development Assistance from the OECD's Query Wizard for International Development Statistics is used. The dataset contains 61 countries surveyed by the World Bank one or more times between 2006 and 2014. An instrumental variable estimation is introduced, with Security Council membership as an instrument, to correct for the endogeneity of aid. Unfortunately, the analysis does not find evidence that firms in countries which receive more aid perform better. This can be either because governments do not reallocate aid money towards firms, or because for different reasons firms cannot ameliorate their performance with the help of aid inflows. |
| Supervisor | Koren, Miklós |
| Department | Economics MA |
| Full text | https://www.etd.ceu.edu/2015/viragh_timea.pdf |
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