Does The Inflows Of Foreign Aid Dampen Or Stimulate FDI to EAC Members? Evidence From East African Community Members

Abstract

Recently, the World Bank and IMF have been more interested in understanding whether foreign aid inflows from multilateral or bilateral donors have catalyzing effect on the crowd out effect to FDI. From this fact, the paper investigates the causal relationship between foreign aid, both bilateral and multilateral aid with FDI inflows to EAC members. Using time analysis techniques of VECM and Granger causality,  the results are mixed. On one hand,  foreign aid (bilateral and multilateral)  causes FDI in two countries. On the other hand, we found no relationship between foreign aid and FDI in other two countries. The results calls for appropriate policy implementations.