Abstract

The purpose of this paper is to estimate the effect of Official development assistance (ODA) on foreign direct investment (FDI) inflows in developing countries. This issue has been studied by many economists but there is no consensus yet on the relationship between ODA and FDI. We analyzed the data of 91 developing countries for the period of 2000 to 2019. For the whole data, the relationship is not significant in our estimation results. When we divide the data into low-income and middle-income countries, however, we found a positive effect of ODA on FDI inflows in low-income countries, but no significant result in middle-income countries. This result supports the policy direction of international organizations to provide more ODA funding to low-income countries for economic development.

Key Words: ODA, FDI, low-income countries, middle-income countries