Resumen de Does Korea’s official development assistance (ODA) promote its FDI?
This paper empirically investigates whether Korea’s ODA promotes its FDI to recipient countries, using a dynamic panel analysis over the period from 1995 to 2012. The regression results reveal that total ODA, infrastructure aid, and technical assistance exert positive effects on Korea’s total FDI stock in the recipient countries. At the sectoral level, differences between manufacturing and service sectors are noticeable, implying that the so-called vanguard effect of ODA on FDI depends both on industrial sector and on the type of ODA. The positive effects of ODA on manufacturing FDI are confirmed only in loan-type ODA. Infrastructure-related aid shows no significant effects on FDI in services, but technical assistance and humanitarian aid are positively associated with service sector FDI.
Our empirical findings suggest that Korea’s ODA plays a crucial role in facilitating its private investment flows to recipient countries, and thus it is important to formulate appropriate ODA policies favorable for private capital flows.
