ODA FDI Asean Tu Thuy - Vu Thui

SECO / WTI Academic Cooperation Project
Working Paper Series 9 / 2012
On the Impacts of ODA on FDI:

Does Composition of FDI Matter?
Evidence from Asean Countries 1
Tu Thuy Anh 2 and Vu Thi Phuong Mai 3
December 2012
Superviser: Dr. Anirudh Shingal
1. Introduction
Majority of studies show that Foreign Direct Investment (FDI) can play
a fundamental role by reinforcing the capacity of the recipient country and
using opportunities given by a global economic integration. It is well-known
that a good preparation in infrastructures, in human resources and in
technology is necessary to attract FDI a given country. However, most of
developing countries appear to have limited social and economic conditions,
limited technology, and low quality of the human resources in comparison with
the developed countries. To improve this situation, strong government
expenditure is needed. In case that the governments budget is not sufficient,
outside financial resource allocation could be a good compensation. Obviously,
this financing method brings an optimum resolution for the developing
1
We would like to acknowledge the SECO-WTI Academic Cooperation Project for funding the
visiting fellowship and twinning agreement under which this research has been undertaken. We would
also like to thank Anirudh Shingal for his supervision and Pierre Sauv for his comments and
suggestions.
2
Vietnam Foreign Trade University (thuyanh.tu@gmail.com)
3
Vietnam Foreign Trade University (phuongmainice@gmail.com)
countries: use the Official Development Assistance (ODA) as a tool to promote

FDI and economic growth, especially of developing countries.
Association of Southeast Asian Nations (ASEAN) represents one of the
economic regions being known as experiencing very high economic growth
starting from 1980s. Moreover, this economic region is considered to be all
the developing countries are the best success in attracting FDI and inserting the
foreign firms into national strategies of development (OECD, 2004, p.81).
Besides, the ODA flows to ASEAN countries play also a significant role. In
fact, the ODA help these countries to improve our levels of infrastructure
development and the provision of essential social services such as health and
education which are important to attract more the FDI. Our research sheds light
on the interaction between ODA and FDI in the ASEAN countries.
In addition to the humanitarian needs, the objective of ODA is to
promote economic and social development of recipient countries. ODA flows
are therefore dependent upon the extent of the needs of the recipient in terms of
development assistance and its ability to use the assistance of effective ways,
rather than its locational advantages economically compared to other countries.
In contrast, the objective of FDI is seeking benefits for companies. Therefore,
the ability of countries to attract FDI depends on its locational advantages
(market size, abundant resources ...) compared to other countries. Benefits such
as market size and cost competitiveness tend to improve economic
development and growth.
In 2005, over 30% of ODA from DAC has been allocated to education,
health, production and other social infrastructure. The economic infrastructure
and welcomed about 11% of production (agriculture and manufacturing) about
5%. The rest went to multisector activities, assistance programs, humanitarian
assistance and activities not specified. At the same time, the inward stock of
FDI in developing countries is distributed among services (58%), including
services to producers but also consumers (the most important sectors such as
business operations, financial services, the Trade, transportation, storage and
communications), the manufacturing sector (31%) and the primary sector (9%)
(UNCTAD, 2007, p.11).
ODA therefore tends to encourage more FDI as investment in education,
health, population and social infrastructure that play an essential role in the
formation of human capital and human development. In contrast, FDI is
targeting production in mining operations, manufacturing and, increasingly,
producer services and infrastructure services that contribute significantly to
other sectors including telecommunications, trade, financial and business
services.
So, we found that the coexistence of FDI and ODA in the utilities
(electricity, gas and water), transport and storage. However, ODA provides
base supports the attractiveness of FDI. Indeed, the efficient allocation of ODA
to the development of human resources, infrastructure development and
capacity building of enterprises in recipient countries. On the other hand, a
good environment of the host country based on the quality of human resources,
infrastructure and capabilities of indigenous firms is the sine-qua-non for
attracting FDI.
We know that with the help of ODA, social and economic
infrastructures are improved. For the direct channel, a good quality of
infrastructure directly contributes to improving the investment environment.
For the indirect channel, the ODA contributes to reform the quality of human
resources. In turn, a high quality workforce encourages promotion of income,
and an increase in consumption and market size. In sum, all direct and indirect
impacts of ODA positively affect the investment environment to better attract
FDI and vice versa. This idea leads to an optimal solution to use ODA as an
instrument to promote FDI in developing countries. In reality, this idea is
already developed not only by the recipient countries but also by development
assistance agencies. Recognizing that the private sector is the primary source of
employment and advance the incomes of the poor, and thus generate income
necessary to allow governments to expand access to health care, education and
infrastructure and contribute to improving productivity and creating growth
3
including poor and good for them, aid agencies thus guide the development of
increasing ODA to the efforts in encouraging countries development to address
market failures and overcome structural barriers hampering private investment.
The challenge is to ensure that ODA and FDI are complementary. To this end,
first, it should increase aid significantly in meeting the needs of attractiveness
of FDI, on the other hand, it would maximize the benefits of FDI to "ensure
that investments made in these countries translate into lasting gains for
development "(UNCTAD, 2007, p.12).
In conclusion, recall the idea of Ragnar Nurske who believes that "a
country is poor because he is poor" (1953). This is a really a vicious circle for
most LDCs. According to Elsa Assidon (2000, p.13), to break this circle, "the
support of external assistance was needed (...)". To argue, she said that "Europe
itself had she not resorted to the Marshall Plan to reboot its growth after the
war?
There are a few studies that examine the relation between foreign aid
and FDI by using cross-country panel data, most notably Harms and Lutz
(2006) and Karakaplan, Neyapti, and Sayek (2005). Karakaplan et al. (2005)
find that aid has a negative direct effect on FDI and that both good governance
and financial market development significantly improve the impact of aid on
subsequent flows of FDI. Harms and Lutz (2006), on the other hand, find that
once they control for the regulatory burden in the host country, aid works as a
complement to FDI and, surprisingly, that the catalyzing effect of foreign aid is
stronger in countries that are characterized by an unfavorable institutional
environment.
There are also some important papers analyzing specifically the relation
between Japanese FDI and aid flows. Among these, Blaise (2005) finds
positive effects from aid to infrastructure projects, while Kimura and Todo
(2010) find no positive infrastructure effect, no negative rent-seeking effect but
a positive vanguard effect (arising when foreign aid from a particular donor
country promotes FDI from the same country but not from other countries).
The relationship between aid and FDI appears to be controversial and

literature on this underlying relation remains inconclusive. This type of mixed
empirical results can be explained to a large extent by the high level of
aggregation used for the aid variable. Karakaplan et al. (2005) includes only
overall ODA. Harms and Lutz (2006) distinguish between grants, technical
cooperation grants, as well as bilateral and multilateral aid. Kimura and Todo
(2010) apply the idea of different types of aid but do not implement an
effective disaggregation.
There exist two major shortcomings in this literature. Firstly, none of the
existing papers consider FDI at the disaggregate level. Secondly, there is the
lack of a supporting theoretical model. To our knowledge, there are only two
papers analyzing theoretically the relationship between aid and FDI. The first
one is Beladi and Oladi (2007) that set up a general equilibrium model where
all foreign aid is used to finance public goods, but where they unfortunately do
not consider any further disaggregation for the aid flows nor make an empirical
analysis. The second and most remarkable one is Selaya and Sunesen (2012)
that developed a theoretical model explaining the ambiguous relation between
aid and FDI and test this relation empirically.
The originality of our paper is to fill in exactly these two shortcomings.
First, we modify Selayas theoretical model by introducing disaggregated FDI
and evaluate theoretically impacts of not only disaggregated ODA but also FDI
invested in complementary factors on FDI invested in physical capital the
major type of FDI we usually observe. Second, we fit the theoretical
framework to ASEANs data to shed lights on this underlying relation at the
South East regions level.
The paper is organized as follows. The theoretical is derived in section
2. A overall analysis of FDI and ODA in ASEAN countries is described in
section 3. The empirical model is constructed in section 4. Data are overviewed
in section 5. Empirical results are discussed in section 6. Conclusion remards
finalize the paper.
2. Theoretical model
As suggested by Selaya and Sunesens model (2012), assume a Solow
model for a small open economy. Assume a Cobb-Douglas production function
where GDP per capita, y, is given by
y = Ak
(1)
where k is the stock of physical capital per capita (K/L), A denotes total factor
productivity and is a constant.
Assume that the total flow of foreign aid, AID, can be split into aid
invested in complementary factors, AIDA , and aid invested in physical capital,
AIDK , so that =
AID AIDA + AIDK . The part invested in complementary
factors, AIDA , raises the marginal productivity of all production factors that are
complementary to physical capital. Aid to complementary factors helps for
example to finance infrastructure investments that lead to the interconnection
of markets, or investments in human capital improve technology adoption. On
the other hand, aid invested in physical capital, AIDK , enters the production
function only through its effect on physical capital accumulation and has no
(augmenting) effect on total factor productivity.
To model the augmenting effect of complementary aid on all production
factors that are complementary to physical capital, we allow the flow of AIDA
and FDI A to increase the existing stock of A ( AID0 ) in the economy:
A=
A0 + AIDA + FDI A
(2)
Allowing complementary aid as well as investment to have a direct

impact on A is for the idea that AIDA and FDI A has an augmenting effect on
any production factor other than k (e.g. human capital, public investments, new
technology, etc.) and, thus, it is ultimately able to increase the MPK (marginal
product of capital).
We assume an open economy, therefore capital equipment is financed
by (i) domestic savings (S=sy, where s is a given savings rate); (ii) foreign
direct investments in physical capital ( fdiK ) and (iii) the part of aid invested in
6
physical capital ( aid K ). Then, capital accumulation in per capita terms is given
by
.
k = sy + fdiK + aid K (n + )k
(3)
where n is the population growth rate and is a fixed depreciation rate.

With perfect capital mobility, the world real rate of return, r w , pins
down at any point in time the net return to capital (MPK-), and thus
w
r=
MPK =
A k 1
(4)
According to (4), the steady state level of k at any point in time is given
by
1
A 1
k* =
r
(5)
where r is defined as a gross world real rate of return, r w + .

Rewriting (3) taking (5) as given, the flow of FDI per capita is
determined as the residual
fdiK =
aid K sy * +(n + )k *
(6)
where y* = Ak * .
Hence, the empirical relationship between aid and FDI are not
monotonic:
dfdiK =
fdiK
fdiK
fdiK
daid K +
daid A +
dfdiA .
aid K
aid A
fdiA
The above equation holds several implications. First and the most
obviously, aid K
and
fdiK
are substitutes (
fdiK
= 1 ). Second, since
aid K
aid A and fdiA are perfectly substitutes, its impacts on fdiK are in the same
direction. Since s
y*
y*
k *
k *
(or s
) and (n + )
(or (n + )
)
aid A
fdiA
aid A
fdiA
work in opposite directions, the sign of the second and third effects will be
ambiguous. The total impacts of three effects on
fdiK are therefore
indeterminate and there is room for empirical works to withdraw the final
conclusion:
7
dfdiK =
fdiK
fdiK
fdiK
>
daid K +
daid A +
dfdiA 0
aid K
aid A
fdiA
<
(7)
If mobility of capital is imperfect, MPK should be allowed to deviate

from the gross world interest rate by a risk-premium, , that reflects
idiosyncratic country characteristics. In this case, the first-order condition in
(4) should read
r+ =
MPK ,
(8)
and the capital stock in (5) should be redefined accordingly:

1
A 1
.
k* =
r +
(9)
While this renders the effect of aid invested in physical capital

unchanged, the effect of complementary aid becomes somewhat more
complicated. The risk premium impacts FDI directly through (9) but, given
that the marginal effect of
aid A
and fdiA will also depend on the risk
premium and thus on country-specific characteristics.
3. FDI and ODA in ASEAN countries: an overview

Figure 1 shows the evolution of FDI inflows and ODA flows to
developing countries over the period 1970-2010. In this figure, FDI takes the
primary axis, while ODA commitment and ODA disbursement take the
secondary axis. In fact, total ODA increased steadily for twenty years to over
60 billion dollars in 1991, almost twice the 1980 figure (33 billion). During the
same period, FDI has increased fivefold (from 7.5 billion in 1980 to 40 billion
in 1991).
Figure 1: Inflows of FDI and ODA flows to developing countries, total
(1970-2010) (USD millions)
Source: database on ODA: http://stats.oecd.org; on FDI: http://stats.unctad.org
Since 1992, while FDI flows have continued to progress, ODA has
declined. In real terms, total aid to LDCs in 2002, 17 billion, was 16% lower
than the figures achieved in the early 90s. The figures for development
assistance in 2007 are far from the targets (the quantitative goal for 2015 set
under the Millennium Development is 0.7%). The official development aid
distributed by all DAC members totaled USD 103.7 billion, marking a decline
of 8.4% in real terms over 2006, according to provisional data reported by
members. At a cost equivalent to 0.31% of gross national income (GNI)
accumulated in these countries in 2006, the share of ODA in GNI in 2007 was
only 0.28%. In other words, for developing countries, it is extremely difficult to
predict the flow of aid they receive. Furthermore, studies have shown that aid
tends to increase during periods of expansion and become scarce during
periods of slowdown or recession. This means that the volume of aid has
tended to contract for specific times when developing countries most in need.
In this regard, the need to increase aid effectiveness and improve the coherence
and harmonization, with a view to increasing the overall volume of aid is
considered more than ever a key objective of recipient countries and aid
agencies. In comparison, FDI inflowing into developing countries has tripled
compared to 2002. These figures allow us to conclude that flows of ODA and
FDI have evolved in different ways over the last fifteen years.
Turning to FDI flows to South-East Asia or the ASEAN sub region

increased by 18% in 2007, to $61 billions of US dollars resulting in yet
another year of robust FDI growth there. The evolution of FDI and ODA to the
South-East Asia region is shown in figure 2 that follows similar construction
method as figure 1.
Figure 2: FDI and ODA flows in ASEAN (1970-20010)
One sees clearly that nearly all ASEAN countries received higher
inflows. Singapore, Thailand, Malaysia, Indonesia and Viet Nam, in that order,
were the largest FDI recipients, together accounting for more than 90% of
flows to the sub region. While FDI growth in 2007 differed considerably
between countries, the newer ASEAN member countries in particular
(Myanmar, Viet Nam, Cambodia and the Lao Peoples Democratic Republic,
in that order) recorded the strongest FDI growth, exceeding 70% in each
(World Investment Report, 2008). Favorable regional economic growth, an
improved investment environment, higher intraregional investments, and
strengthened regional integration were key contributory factors. Reinvested
earnings were particularly strong, highlighting the importance of existing
investors as a source of FDI. Increased inflows in Viet Nam were the result of
that countrys accession to the World Trade Organization (WTO) in 2007, as
well as greater liberalization and FDI promotion efforts, particularly with
respect to infrastructure FDI. There were higher FDI inflows in extractive
10
industries in Myanmar, in telecommunications and textiles and garments

manufacture in Cambodia, and in agriculture, finance and manufacturing in the
Lao Peoples Democratic Republic.
Figure 3. FDI inflows and ODA to ASEAN countries, 1970-2010
(Millions USD)
In 2010, FDI to ASEAN surged to $79 billion, surpassing 2007s

previous record of $76 billion. The increase was driven by sharp rises in
inflows to Malaysia (537 per cent), Indonesia (173 per cent) and Singapore
(153 per cent). Proactive policy efforts at the country level contributed to the
good performance of the region, and seem likely to continue to do so: in 2010,
Cambodia, Indonesia improved its FDI-related administrative procedures; and
the Philippines strengthened the supportive services for public-private
partnerships (PPPs).
Figure 4: Percentage of FDI and ODA to ASEAN in 2010 by country
11
In Singapore, which accounted for half of ASEANs FDI, inflows

amounted to a historic level of $39 billion in 2010 (figure 4). As a global
financial centre and a regional hub of TNC headquarters, the island State has
benefited considerably from increasing investment in developing Asia, against
a background of rising capital flows to the emerging economies in general in
the post-crisis era. Due to rising production costs in China, some ASEAN
countries, such as Indonesia and Vietnam, have gained ground as low-cost
production locations, especially for low-end manufacturing. ASEAN LDCs
also received increasing inflows, particularly from neighboring countries like
China and Thailand. For instance, the Lao Peoples Democratic Republic has
been successful in attracting foreign investment in infrastructure in recent
years; as a result of Chinese investment in an international high-speed rail
network, FDI to the country is likely to boom in the coming years.
Besides, the sum of ODA for Asia (including ASEAN) ranks in 2nd
position, behind Africa. In fact, according to the results of our another
investigation, over period 1960-2007, a big part of worldwide ODA
concentrates in Africa (34,3 %) and in Asia (33,5 %). Latin America is the
third beneficiary (10,1 %). In that time, in developing countries, the two thirds
of the complete fluxes of FDI go in Asia and in America while Africa is
classified in third position. For instance over period 2000-2007, Asia occupies
62,02 % of inflows of FDI towards developing countries, America accepts
12
28,81 % of the total and, this figure of Africa is 8,96 %. So, Asia records the
only case where the inflows of FDI are so much important as ODA. This
source of outside allocation contributes irrefutably to the improvement of social
and economic infrastructures of the ASEAN countries. So, graphically, the
figure 3 and figure 4 allow us to assume the existence of a positive interaction
between ODA and FDI in ASEAN member countries.
13
Table 1: FDI of ASEAN countries in 2010, ranking by sectors

(rank, percentage of total FDI of the country)
Sector
Agriculture
Manufacturing
Trade
Mining
Public administration
Construction
Transport and communications
Electricity, gas, and water
Finance
Total value (Millions USD)
Cambodia
1 (33.84%)
2 (14.91%)
3 (13.84%)
8 (0.62%)
6 (1.76%)
5 (5.48%)
4 (7.47%)
9 (0.55%)
7 (1.46%)
76.221731
Indonesia
2 (15.34%)
1 (24.82%)
3(13.72%)
4(11.15%)
8(5.51%)
5(10.29%)
7(6.50%)
9 (0.78%)
6(7.21%)
1.375368
Lao
1(28.87%)
3(9.45%)
2(20.17%)
4(7.42%)
7(4.49%)
5(5.07%)
6(5.00%)
8(3.68%)
9(3.56%)
33.65298
Malaysia
5(10.63%)
1(26.11%)
2(14.50%)
4(12.55%)
6(764%)
8(3.23%)
7(6.63%)
9(2.51%)
3(13.15%)
910296.6
Myanmar
1(36.36%)
3(19.52%)
2(19.84%)
8(0.91%)
6(2.14%)
5(4.54%)
4(13.77%)
7(1.03%)
9(0.08%)
7779574
Philippines
3(12.31%)
1(21.44%)
2(17.37%)
9(1.43%)
7(4.14%)
6(6.12%)
5(6.51%)
8(3.57%)
4(6.91%)
129.7999
Thailand
3(12.42%)
1(35.63%)
2(13.10%)
7(3.42%)
6(4.36%)
9(2.67%)
4(6.81%)
8(2.94%)
5(6.32%)
973.3324
Vietnam
1(20.58%)
2(19.68%)
3(14.59%)
4(10.86%)
5(7.55%)
6(7.03%)
7(4.31%)
8(3.53%)
9(1.89%)
819.0824
Source: http://stats.unctad.org
Table 2: ODA of ASEAN countries in 2010, ranking by sectors

(rank, percentage of total FDI of the country)
Sector
Infrastructure
Transport
Energy
Production
Banking
Business
Communications
Total value (Millions USD)
Cambodia
1(50.36%)
2(33.44%)
5(1.82%)
3(8.67%)
4(4.90%)
6(0.44%)
7(0.37%)
929.8821
Indonesia
1(62.24%)
4(3.52%)
2(20.89%)
3(12.26%)
5(0.48%)
6(0.35%)
7(0.26%)
2144.219
Lao
Malaysia
1(41.66%) 1(54.87%)
3(21.91%) 7(0.72%)
2(22.50%) 2(24.15%)
4(9.69%) 3(16.18%)
6(1.37%)
4(1.75%)
5(2.34%)
5(1.31%)
7(0.53%)
6(1.02%)
449.858
71.18099
Myanmar
1(86.26%)
3(1.29%)
6(0.08%)
2(11.32%)
5(0.42%)
7(0.02%)
4(0.60%)
246.3293
Philippines
1(71.79%)
3(7.34%)
4(3.97%)
2(13.19%)
6(1.14%)
5(2.06%)
7(0.51%)
518.0623
Thailand
2(23.01%)
1(57.69%)
5(2.93%)
4(6.32%)
7(0.21%)
3(8.70%)
6(1.13%)
479.7059
Vietnam
1(45.02%)
2(25.77%)
3(12.59%)
4(11.85%)
5(2.84%)
6(1.49%)
7(0.44%)
3121.3
Source: http://stats.oecd.org
14
4. The empirical model

To test the above theoretical model, we derive the relationship between
aid and fdi as taking the following reduced form: 4
fdik = f(fdia, aidk, aida, X).
(10)
To explain fdik - the amount of fdi invested in physical capital in a

country, we expect the impacts of aidk - the amount of aid invested in physical
capital, aida aount of aid invested to complementary factors, fdia - the
amount of fdi invested in complementary factors ; and other determinants of fdi
all reflected in vector X, like the gross domestic savings; the current account
balance; the inflation indexIn a panel setting, the econometric interpretation
of this aid-fdi relationship is :
fdikit = 0+ 1fdiait+ 2aidait+ 3aidkit+ 4gdpit+ 5bopit+ 6sit+
7hdiit+ 8popit+ 9inflait+ uit
(11)
where fdikit is the net flow of FDI invested in physical capital to country i at
period t; fdiait is FDI invested in complementary factors; aidait denotes AID
invested in complementary factors; aidkit is AID invested in physical capital;
gdpit is gross domestic product; bop is current account balance, s is gross
domestic savings, hdi is human development index value, pop is population
and infla is inflation index. Noting that AID is divided into aida and aidk to
model the impacts of aid on fdik by the direct channel (aidk) as well as by the
indirect channel (aida).
We expect 1 to be positive in this specification since higher
investments in complementary factors raise the demand for investments in
physical capital. The net effect of aida on fdik is theoretically ambiguous,
hence will be shown only empirically. From the theoretical analysis, aidk is
expected to crowd out foreign investments, therefore the sign of 3 is expected
to be negative. We expect 4 to be positive since a host countrys size, typically
measured by GDP, is important in determining a countrys FDI inflows (Tsai,
4
Aid (also known as international aid, overseas aid, or foreign aid) is a voluntary transfer of resources
from one country to another, given at least partly with the objective of benefiting the recipient country.
The most widely measure of aid is Official Development Assistance (ODA). This term is first defined
by the DAC of the OECD in 1961.
15
1994). It is also widely argued that FDI and openness of the economy will be
positively related (Caves, 1996; Singh and Jun, 1995). Recall that the degree of
openness of the country can be measured by its export and import both divided
by GDP. So, we include the BOP in the regression and expect that its
coefficient 5 is positive. 6 should be negative since a high level of domestic
savings lowers the need for foreign capital. We also expect 7 to be positive
since a higher quality of labors can encourage more investors in FDI. Finally,
8 is expected to be positive since a big size of the local market, represented by
the population, allows for an increase in FDI.
Besides, we assume that not all countries start out with the same initial
conditions, and therefore we include time and country effects in the model. To
avoid missing relevant variables, we extend the list of regressors to include a
lagged dependent variable, which basically reflects the persistent nature of fdik.
We believe that the omitted variables bias is substantially reduced by including
a full set of time dummies, individual country effects, the initial level of GDP,
and the lagged level of the dependent variable.
Our final empirical model is specified as follows :
fdikit = 0+ 1fdiait+ 2aidait+ 3aidkit+ 4gdpit+ 5bopit+ 6sit+ 7hdiit+
8popit+ 9inflait+ 10 country+ 11 year+ 12lagfdik+ uit
(12)
5. Data
The dependent variable in all our regressions, fdikit, is the sum of FDI
invested in 6 sectors: agriculture, mining, manufacturing, construction, trade
and finance which represent physical capital sector. The independent variable,
fdiait, is the sum of FDI flows in complementary inputs (such as electricity,
transport and communications, public administration, taxes minus subsidies on
products, taxes on imports and less imputed bank service charges). Because we
cannot obtain any FDI database classified by sector, we indirectly construct this
data by ourselves. We collect data on FDI as percentage of GDP from
UNCTAD website, and collect data on GDP by sector from ADB database. We
then derive FDI by sector data basing on the following equation:
16
(13)
where FDIit is FDI in sector i during period t; GDPit is GDP in sector i during
period t; % (FDI/GDP) is percentage of FDI in total GDP of country j at time
t ; r is exchange rate between local currency and USD at time t.
The aid variables are total net flows of official aid commitments
reported in the OECD aid statistic database. Aid is also decomposed into two
broad categories, relying on the sectoral disaggregation from OECDs Aid
Activity database:
Aid invested in complementary inputs, aida, is all aid used in social
infrastructure (such as communications, energy, social infrastructure and
transport).
Aid invested in physical capital, aidk, is all aid contributing directly to
production sectors (such as banking, business and production).
These two categories capture the main characteristics of aida and aidk:
aid invested in complementary factors intended to generate positive spillover
effects (public goods, inputs complementary to physical capital) whereas aid
invested in physical capital has a more narrow purpose and could more easily
have been undertaken by private investors.
17
Figure 4. Compositions of ODA of ASEAN countries

Cambodia
Indonesia
Laos
Malaysia
18
Myanmar
Philippines
Thailand
Vietnam
19
Figure 5. Compositions of FDI of ASEAN countries

Cambodia
Indonesia
Laos
Malaysia
20
Myanmar
Philippines
Thailand
Vietnam
21
With this classification in hand, composition of ODA to each ASEAN

country is depicted in figure 4. We see that in all countries, a large propostion
of aid is for the complementary sector.
Similar rules applied to divide FDI into FDIk and FDIa. We see in
contrary, in all countries, a large proposition of FDI is for the physical capital
(see figure 5).
The main control variables are the gross domestic savings that are taken
from ADB database ; the human development index value taken from UNDP,
the gross domestic product, balance of payment, inflation and population all
taken from World Economic Outlook Database of IMF.
All the data was converted from current price to constant price 2000 by
applying the following equations:
(14)
where
is constant price at time t; defbase is the implicit GDP deflator at
2000; defnon-base is the implicit GDP deflator at other year;
is current price at
time t. The implicit GDP deflator is taken from ADB database.

We summarize the expected sign of each variable and their sources in
table 3 as follows :
Table 3: Variable names, definitions and data sources
Aida
Definition
FDI invested in physical capital
(agriculture+ mining+ manufacturing+
construction+ trade+ finance)
FDI invested in complementary factors
(electricity, gas & water+ transport&
communications+ public administration+
others+ taxes less subsidies on products+ taxes
on imports- imputed bank service charges)
AID invested in complementary factors
(communications+ energy+ social
infrastructure+ transport)
Aidk
AID invested in physical capital

(banking+ business+ production)
GDP
Gross domestic product
Bop
Current account balance
Fdik
Fdia
22
Unit
billions USD,
constant price
2000
Source
ADB,
UNCTA
D
millions USD,
constant price
2000
millions USD,
constant price
2000
billions USD,
constant price
2000
billions USD,
constant price
2000
billions USD,
constant price
ADB,
UNCTA
D
Sign
UNCTA + or
D UNCTA
D
IMF +
IMF +
Infla
Inflation
Gross domestic savings
Hdi
Human development index
Pop
Population
2000
average
consumer prices
Index
billions USD,
constant price
2000
IMF -
ADB -
HDR/U
NDP +
millions persons
+ or
IMF -
Notes :
-
ADB : Asian Development Bank (ADB)/ Key Indicators for Asia and
the Pacific 2011/ www.adb.org/statistics
UNCTAD : UNCTADstat/ data extracted on 15 Jul 2012 19:27 UTC

(GMT) from OECD.Stat
IMF : World Economic Outlook Database
HDR/UNDP: HDRO calculations based on data from UNDESA (2011),

Barro and Lee (2010), UNESCO Institute for Statistics (2011), World
Bank (2011a) and IMF (2011)./ Accessed: 10/31/2011,11:07 AM from:
http://hdr.undp.org
6. Empirical results
i) OLS
We start by estimating the impact of independent variables on fdik using
OLS to have a benchmark.
Table 4: Estimation Results of Panel Method of FDI Inflows for ASEAN
Countries Using OLS
Dependent Variable= fdik
Coefficients (OLS)
Coefficient
P-value
-880.8093
0.250
5.29712
0.000*
.0578955
0.283
-.3366853
0.013*
-.0591393
0.943
-.5645343
0.859
-.6836061
0.557
Variables
Intercept
Fdia
Aida
Aidk
Gdp
Bop
S
23
Hdi
Pop
Infla
Lagfdik
817.8138
2.444029
.7025877
-.131042
0.132
0.387
0.375
0.007*
R2
0.9966
Obser.
127
Note:** *, ** and * indicate 10%, 5% and 1% level of significant respectively
So, by including a set of dummies for year and country, we are also
controlling the impact of time dimension and country dimension. Except fdia
estimator, lagfdik, aida and aidk estimators are not good as our expectation: the
coefficient of aida is positive but not significative while the coefficient of aidk
and lagfdik are all negative.
ii) FE/RE models
Because our dataset is panel data (cross-sectional time-series data), we
have to decide whether fixed effect or random effect model fits our data. For
that purpose, we run a Hausman test where the null hypothesis is random
effects (the preferred model) versus the alternative is the fixed effects.
Countries Using FE Model
Variables
Intercept
fdia
aida
aidk
gdp
bop
s
hdi
pop
infla
lagfdik

Coefficients (FE model)
Coefficient
P-value
-293.4201
0.376
5.265827
0.000*
.029585
0.692
-.1572828
0.477
-.1953439
0.789
-4.840637
0.144
-.4659532
0.280
448.464
0.254
-.6414817
0.870
.3537186
0.245
-.1081347
0.000*
R2
0.9918
Obser.
127
Note: ** *, ** and * indicate 10%, 5% and 1% level of significant respectively
24
The result of Hausman test recommend the fixed effect model.

However, two important independent variables aida and aidk are both not
significative at 1%, even at 5% or 10%.
iii) 2SLS
To get a better estimate of the effect of aid on fdi, we try to use aida, hdi
and pop as instruments for aidk, we have the result as follows:
Countries Using 2SLS model
Variables
Intercept
Fdia
Aidk
Gdp
Bop
S
Infla
Lagfdik

Coefficients (2SLS)
Coefficient
P-value
56.66896
0.644
5.275206
0.000*
.365944
0.290
-.03536
0.960
-3.883426
0.247
-.5759026
0.575
.5449874
0.444
-.1214462
0.004*
R2
0.9962
Obser.
127
Instrumenting for aidk here has led to a coefficient of 0.365 but this is
insignificantly different from zero. Now, we run the 2SLS regression to get the
following result :
Countries Using 2SLS model (1st stage)
Dependent Variable= aidk
Coefficients (2SLS)
Coefficient
P-value
Variables
Intercept
fdia
aida
gdp
bop
.0000132
.107984
0002371
.00199
25
0.246
0.004*
0.595
0.333
s
hdi
pop
infla
lagfdik
-.0001081
.197392
-.0020961
.0001611
-8.94e-06
0.199
0.435
0.251
0.059**
0.087***
R2
0.6958
Obser.
127
Looking at the first stage we see that few of the instruments have
coefficients significantly different from zero- we might be concerned that the
instrument is weak.
iv) Arellano- Bond GMM estimator
Several econometric problems may arise from estimating equation (10):
(1) The capital flows variables in fdikit are assumed to be endogenous.
Because causality may run in both directions- from capital inflows to
investment to investment and vice versa-these regressors may be
correlated with the error term.
(2) Time-invariant country characteristics (fixed effects), such as geography
and demographics, may be correlated with the explanatory variables.
The fixed effects are contained in the error term in equation (1), which
consists of the unobserved country-specific effects and the observationspecific errors.
(3) The presence of the lagged dependent variable lagfdikit gives rise to
autocorrelation.
(4) Heteroskedasticity and autocorrelation within individuals, but not across
them. 5
(5) Independent variables that are not strictly exogenous, meaning
correlated with past and current realizations of the error. 6
To solve problem (1) and (2), one would usually use fixed-effects
instrumental variables estimation (2SLS) which is what we tried first.
5
6
See Heteroskedasticity test in Appendix 1

See Cross-sectional dependence test in Appendix 2
26
However, the first-stage statistics of the 2SLS regressions showed that our
instruments were weak. With weak instruments the fixed-effects IV estimators
are likely to be biased in the way of the OLS estimators. Therefore, we decide
to use the Arellano-Bond (1991) difference GMM estimator first proposed by
Holtz-Eakin, Newey and Rosen (1988). The first-differenced lagged dependent
variable (problem 3) is also instrumented with its past levels. Finally, the
problem of heteroskedasticity (4) and cross-sectional dependence (5) will also
be removed.
Before using Arellano-Bond GMM, we need to test for the stationarity
of the model by unit root tests. As Maddala and Wu (1999) describe the IPS
test the IPS test is a way of combining the evidence on the unit-root
hypothesis from the N unit-root tests performed on the N cross-section units.
Fisher-type panel unit-root tests make this approach explicit. 7 That is the
reason why we use the Fisher-type tests in our model.
We consequently test for a unit root in fdik, fdia, aida, aidk, bop, gdp, s,
hdi, bop and infla. We will use the ADF test. Because the number of panels is
finite, the inverse 2 test is applied. 8
As before, we apply the panel unit root tests including constant and
trend in level. The results are shown in table 8 as follows:
Table 8: Panel unit root test results in level
Variable
fdik
fdia
aida
aidk
ADF-Fisher chi square

(constant)
27.2473** (0.0388)
95.6230* (0.0000)
50.0414* (0.0000)
62.4451* (0.0000)

(trend)
18.1028 (0.3179)
88.0186* (0.0000)
51.6718* (0.0000)
51.4102 (0.0000)
xtunitroot fisher combine the p-values from the panel-specific unit-root tests using the four methods
proposed by Choi (2001). Three of the methods differ in wheher they use the inverse 2, inverse
normal, or inverse logit transformation of p-values, and the fourth is a modification of the inverse 2
transformation that is suitable for when N tends to infinity. The inverse normal and inverse logit
transformation can be used whether N is finite or infinite.
The null hypothesis being tested by xtunitroot fisher is that all panels contain a unit root. For a finite
number of panels, the alternative is that at least one panel is stationary. As N tends to infinity, the
number of panels that do not have a unit root should grow at the same rate as N under the alternative
hypothesis.
8
this statistic has a 2 distribution with N degrees of freedom, and large values are cause to reject the
null hypothesis. Under the null hypothesis, as T followed by N , P tends to infinity so that P
has a degenerate limiting distribution.
27
Bop
25.8593** (0.0560)
18.8090 (0.2787)
Gdp
2.0586 (1.0000)
8.5978 (0.9290)
S
2.8760 (0.9999)
14.3298 (0.5742)
Hdi
16.9438 (0.3892)
3.6266 (0.9994)
Pop
16.2523 (0.4355)
18.1931 (0.3127)
Infla
1.0899 (1.0000)
6.1648 (0.9862)
The p-value is in parentheses, ** and * denote the rejection of the null
hypothesis at 5% and 1% significance, respectively.
We find that the panel unit root tests results strongly support stationary
of fdik, fdia, aida, aidk and bop. The remaining variables (gdp, s, hdi, pop and
infla) are not stationary (integrated of order 0) due to the possible endoneneity
of regressors. Hence, we suggest that these variables are integrated of order 1
or higher. In fact, a variable is determined to be I(1) if a unit root is found in
levels and stationarity is found in first differences. From table 9, we have
evidence to reject the null hypothesis that all panels contain unit roots.
Table 9: Panel unit root test results in first difference
Variable
(constant)
(trend)
Gdp
332.0537* (0.0000)
320.7439* (0.0000)
S
402.0790* (0.0000)
402.2064* (0.0000)
Hdi
265.9168* (0.0000)
268.0739* (0.0000)
Pop
505.1528* (0.0000)
505.1804* (0.0000)
Infla
387.7467* (0.0000)
371.7836* (0.0000)
The p-value is in parentheses, ** and * denote the rejection of the null
hypothesis at 5% and 1% significance, respectively.
So, the regressors fdik, fdia, aida, aidk and bop will be kept in level
without trend while gdp, s, hdi, pop and infla will be transformed by first
differencing. In that way, we have a stationary model.
GMM estimator by controlling time and country effects
From equation (1) we get:
fdikit = 1fdiait+ 2aidait+ 3aidkit+ 4Dgdpit+ 5bopit+ 6Dsit+ 7Dhdiit+
8Dpopit+ 9Dinflait+10lagfdikit+ 11country+ 12year+ vit
(15)
where:
Dgdpit denotes the gross domestic product variable in first difference,
Dsit denotes the gross demostic savings variable in first difference,
28
Dhdiit denotes the human development index variable in first difference,

Dpopit denotes the population variable in fisrt difference,
Dinflait denotes the inflation index variable in fisrt difference,
Therefore, we have estimation result as follows:
Countries Using GMM model with year and country effects
Coefficients (2SLS)
Coefficient
P-value
-37.18714
0.573
-.0925815
0.000*
-.484664
0.438
1.757468
0.534
-96.69941
0.031**
-704.4586
0.224
-.8772231
0.000*
4.946434
0.000*
5.173003
0.000*
.0915501
0.074**
-.2513535
0.103**
Variables
Intercept
Lagfdik
Dgdp
Bop
Dpop
Dhdi
Ds
Fdia
Dinfla
Aida
Aidk
Number of Obs.
112
Number of instruments
113
Wald chi2(24)
42443.86 (0.0000)
We see that all important instruments have coefficients significantly
different from zero: the coefficient on lagfdik is -0.092 at 1% significance, the
coefficient on fdia is 4.95 at 1% significance, the coefficient on aida is 0.915 at
10% significance and the coefficient on aidk is -0.251 at 10% significance.
GMM estimator without controlling time and year effects
From equation (10) we get:
fdikit = 1fdiait+ 2aidait+ 3aidkit+ 4Dgdpit+ 5bopit+ 6Dsit+ 7Dhdiit+
8Dpopit+ 9Dinflait+10lagfdikit+ vit
(16)
We will use the one-step Arellano-Bond estimator and request their

robust VCE.
29
Countries Using GMM model without year and country effects
Coefficients (2SLS)
Coefficient
P-value
Variables
Intercept
Lagfdik
Dgdp
Bop
Dpop
Dhdi
Ds
Fdia
Dinfla
Aida
Aidk
-.0978983
.1905667
-.9810358
-123.2232
432.4764
-1.174967
4.946891
4.715908
.0695371
-.2305563
0.000*
0.711
0.384
0.211
0.396
0.000*
0.000*
0.000*
0.087***
0.025**
R2
Number of Obs.
112
Number of instruments
95
Wald chi2(7)
1701.45 (0.0000)
We can consider that the P-value of aida and aidk in this case is better
than theirs in previous regression except the case of Dpop variable. The results
confirm one dollar of fdi invested on physical capital attracts on average 4.95
dollars of additional fdik. On the other hand, the result shows that one dollar of
aid invested on physical capital crowds out on average 0.23 dollars of fdik. The
table also shows that one aid dollar invested in complementary factors attracts
on average 0.70 dollars of additional fdik. The effect of other controls is either
insignificant or goes according to the theoretical predictions: population enters
insignificantly, domestic savings negatively (1 additional dollar of domestic
savings is associated with 1,17 dollars less of fdik, and initial GDP enters
positively (1 additional dollar of GDP at the beginning of each period tends to
attract 0.19 dollar of fdik on average.
Postestimation
30
Now, we will use Sargan/Hansen test for joint validity of the

instruments after GMM estimation. Theses tests allow testing for
autocorrelation in the first-differenced residuals and testing the validity of the
overidentifying restrictions.
For the GMM model with country and year effects, we cant perform the
post-estimation tests because we have more instruments (113) than
observations (112) meanwhile for the model without these effects, all the tests
of autocorrelation and overidentifying restrictions are significant- that means
the instruments of the later model are valid. 9
By conclusion, our target when including the country and year effects in
the model is to increase the number of observations. However, once this target
cant be attained; we can focus on the model without these effects. They also
show more statistical significance.
7. Concluding remarks
The analysis shows strict relations between FDI and ODA into a country.
We find robust evidence for ASEAN countries that FDI and ODA invested in
physical capital are substitutes as expected, even though they are not perfectly
substitutes. One possible reason is that the ODA we use in the empirical
analysis is the commitment ODA instead of the disbursement ODA due to the
availability of data. It is also shown that both FDI and AID in complementary
factors are complementary to FDI in physical captital. Results can provide
inputs for decision making of foreign investors and donors in general and in
South East region in particular.
View postestimation tests in Appendix 6 & 7
31
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35
APPENDIX
1. Heteroskedasticity test
. xtreg fdik fdia aida aidk gdp bop s hdi pop infla lagfdik, fe
Fixed-effects (within) regression
Group variable: country
Number of obs
Number of groups
=
=
127
8
R-sq:
Obs per group: min =

avg =
max =
15
15.9
16
within = 0.9941
between = 0.9908
overall = 0.9918
corr(u_i, Xb)
= 0.3384
F(10,109)
Prob > F
=
=
1832.40
0.0000
-----------------------------------------------------------------------------fdik |
Coef.
Std. Err.
t
P>|t|
[95% Conf. Interval]
-------------+---------------------------------------------------------------fdia |
5.265827
.0748263
70.37
0.000
5.117524
5.41413
aida |
.029585
.0745584
0.40
0.692
-.1181873
.1773572
aidk | -.1572828
.2204934
-0.71
0.477
-.5942935
.2797279
gdp | -.1953439
.7275726
-0.27
0.789
-1.637369
1.246681
bop | -4.840637
3.285552
-1.47
0.144
-11.35249
1.67122
s | -.4659532
.4294811
-1.08
0.280
-1.317171
.3852645
hdi |
448.464
390.9469
1.15
0.254
-326.3801
1223.308
pop | -.6414817
3.898563
-0.16
0.870
-8.368307
7.085343
infla |
.3537186
.3023647
1.17
0.245
-.2455585
.9529956
lagfdik | -.1081347
.0205067
-5.27
0.000
-.1487783
-.0674911
_cons | -293.4201
329.8004
-0.89
0.376
-947.0737
360.2335
-------------+---------------------------------------------------------------sigma_u | 199.56759
sigma_e | 180.59799
rho | .54977435
(fraction of variance due to u_i)
-----------------------------------------------------------------------------F test that all u_i=0:
F(7, 109) =
5.69
Prob > F = 0.0000
. xttest3
Modified Wald test for groupwise heteroskedasticity
in fixed effect regression model
H0: sigma(i)^2 = sigma^2 for all i
chi2 (8) =
Prob>chi2 =
8857.45
0.0000
The null is homoscedasticity (or constant variance). Above we reject the null and
conclude heteroskedasticity.
2. Cross- sectional dependence test (CSD)

We assume that uit is formed by a combination of a fixed component specific to the
state and a random component that captures pure noise. Therefore, below we have the
results of the model using the FE estimator:
Number of obs
Number of groups
=
=
127
8
R-sq:

avg =
max =
15
15.9
16
within = 0.9941
between = 0.9908
overall = 0.9918
F(10,109)
1832.40
36
corr(u_i, Xb)
= 0.3384
Prob > F
0.0000
-----------------------------------------------------------------------------fdik |
Coef.
Std. Err.
t
P>|t|
-------------+---------------------------------------------------------------fdia |
5.265827
.0748263
70.37
0.000
5.117524
5.41413
aida |
.029585
.0745584
0.40
0.692
-.1181873
.1773572
aidk | -.1572828
.2204934
-0.71
0.477
-.5942935
.2797279
gdp | -.1953439
.7275726
-0.27
0.789
-1.637369
1.246681
bop | -4.840637
3.285552
-1.47
0.144
-11.35249
1.67122
s | -.4659532
.4294811
-1.08
0.280
-1.317171
.3852645
hdi |
448.464
390.9469
1.15
0.254
-326.3801
1223.308
pop | -.6414817
3.898563
-0.16
0.870
-8.368307
7.085343
infla |
.3537186
.3023647
1.17
0.245
-.2455585
.9529956
lagfdik | -.1081347
.0205067
-5.27
0.000
-.1487783
-.0674911
_cons | -293.4201
329.8004
-0.89
0.376
-947.0737
360.2335
-------------+---------------------------------------------------------------sigma_u | 199.56759
sigma_e | 180.59799
rho | .54977435
-----------------------------------------------------------------------------F test that all u_i=0:
F(7, 109) =
5.69
Prob > F = 0.0000
According to the results, one we account for state FE, aida and aidk has no effect
upon fdik. An assumption implicit in estimating (1) is that the cross-sectional units are
independent. The xtcsd command allows us to test the following hypothesis:
H0: cross-sectional independence
To test this hypothesis, we use the xtcsd command after fitting the above panel-data
model. We initially use Pesarans (2004) CD test:
. xtcsd, pesaran abs
Pesaran's test of cross sectional independence =
3.136, Pr = 0.0017
Average absolute value of the off-diagonal elements =
0.306
As we can see, the CD test strongly rejects the null hypothesis of no cross-sectional
dependence. Although it is not the case here, a possible drawback of the CD test is
that adding up positive and negative correlation may result in failing to reject the null
hypothesis even if there is plenty of cross-sectional dependence in the errors.
Including the abs option in the xtcsd command, we can get the average absolute
correlation of the residuals. Here the average absolute correlation is 0.306, which is a
very high value. Hence, there is enough evidence suggesting the presence of crosssectional dependence in (1) under an FE specification.
Next we corroborate these results by using the remaining two tests Frees (1995) and
Friedman (1937):
. xtcsd, frees
Frees' test of cross sectional independence =
0.398
|--------------------------------------------------------|
Critical values from Frees' Q distribution
alpha = 0.10 :
0.1719
alpha = 0.05 :
0.2262
alpha = 0.01 :
0.3351
. xtcsd, friedman
Friedman's test of cross sectional independence =
17.325, Pr = 0.0154
37
As we would have expected from the highly significant results of the CD test, both
Frees and Friedmans tests reject the null of cross-sectional independence. Since T
30, Frees test provides the critical values for = 0.10, = 0.05 and = 0.01 from the
Q distribution, Frees statistic is larger than the critical value with at least = 0.01.
Using the RE estimator, we have the results shown below:
. xtreg fdik fdia aida aidk gdp bop s hdi pop infla lagfdik, re
Random-effects GLS regression
Number of obs
Number of groups
=
=
127
8
R-sq:

avg =
max =
15
15.9
16
within = 0.9932
between = 0.9980
overall = 0.9947
Random effects u_i ~ Gaussian

corr(u_i, X)
= 0 (assumed)
Wald chi2(10)
Prob > chi2
=
=
21572.91
0.0000
-----------------------------------------------------------------------------fdik |
Coef.
Std. Err.
z
P>|z|
-------------+---------------------------------------------------------------fdia |
5.237567
.0837154
62.56
0.000
5.073488
5.401646
aida | -.0756591
.0616294
-1.23
0.220
-.1964505
.0451323
aidk |
-.43269
.2333102
-1.85
0.064
-.8899697
.0245896
gdp | -1.713865
.4977064
-3.44
0.001
-2.689352
-.7383787
bop | -.0229533
3.244583
-0.01
0.994
-6.38222
6.336313
s | -.4778182
.4431746
-1.08
0.281
-1.346425
.390788
hdi |
121.3234
239.2368
0.51
0.612
-347.5721
590.219
pop |
1.634705
.4466665
3.66
0.000
.7592549
2.510155
infla |
.6893927
.2382594
2.89
0.004
.222413
1.156372
lagfdik | -.1208659
.019442
-6.22
0.000
-.1589715
-.0827604
_cons | -97.96013
149.77
-0.65
0.513
-391.5039
195.5836
-------------+---------------------------------------------------------------sigma_u |
0
sigma_e | 180.59799
rho |
0
------------------------------------------------------------------------------
The results of this second model are in line with those of the previous one, with aida
and aidk having no significant effects upon fdik (at = 0.05). We now test for crosssectional independence by using the new RE specification:
. xtcsd, pesaran abs
Pesaran's test of cross sectional independence =
3.584, Pr = 0.0003
Average absolute value of the off-diagonal elements =
0.269
. xtcsd, frees
Frees' test of cross sectional independence =
0.295
|--------------------------------------------------------|
Critical values from Frees' Q distribution
alpha = 0.10 :
0.1719
alpha = 0.05 :
0.2262
alpha = 0.01 :
0.3351
. xtcsd, friedman
Friedman's test of cross sectional independence =
17.800, Pr = 0.0129
The conclusion with respect to the existence or not of cross-sectional dependence in

the errors is not altered. The results show that there is enough evidence to reject the
null hypothesis of cross-sectional independence.
38
3. OLS
. xi: regress fdik fdia aida aidk gdp bop s hdi pop infla lagfdik i.country
i.year, vce (robust)
i.country
_Icountry_1-8
(naturally coded; _Icountry_1 omitted)
i.year
_Iyear_1995-2010
(naturally coded; _Iyear_1995 omitted)
Linear regression
Number of obs =
F( 32,
94) =
Prob > F
=
R-squared
=
Root MSE
=
127
205.49
0.0000
0.9966
181.23
-----------------------------------------------------------------------------|
Robust
fdik |
Coef.
Std. Err.
t
P>|t|
-------------+---------------------------------------------------------------fdia |
5.29712
.1582804
33.47
0.000
4.98285
5.611389
aida |
.0578955
.0536636
1.08
0.283
-.0486548
.1644457
aidk | -.3366853
.1323415
-2.54
0.013
-.5994524
-.0739183
gdp | -.0591393
.8207194
-0.07
0.943
-1.688697
1.570418
bop | -.5645343
3.1581
-0.18
0.859
-6.835016
5.705947
s | -.6836061
1.158699
-0.59
0.557
-2.98423
1.617018
hdi |
817.8138
538.4393
1.52
0.132
-251.2701
1886.898
pop |
2.444029
2.813773
0.87
0.387
-3.142782
8.030841
infla |
.7025877
.7881125
0.89
0.375
-.862228
2.267403
lagfdik |
-.131042
.0473124
-2.77
0.007
-.2249819
-.0371022
_Icountry_2 |
532.8991
558.1757
0.95
0.342
-575.3717
1641.17
_Icountry_3 |
559.2849
583.0009
0.96
0.340
-598.277
1716.847
_Icountry_4 |
644.7411
477.1533
1.35
0.180
-302.658
1592.14
_Icountry_5 |
349.4011
498.1253
0.70
0.485
-639.6383
1338.441
_Icountry_6 |
114.7235
342.0132
0.34
0.738
-564.3519
793.7988
_Icountry_7 | -54.10324
403.1581
-0.13
0.894
-854.583
746.3765
_Icountry_8 |
155.9275
349.8754
0.45
0.657
-538.7583
850.6132
_Iyear_1996 |
-132.722
81.09713
-1.64
0.105
-293.7423
28.29824
_Iyear_1997 | -156.2683
84.12847
-1.86
0.066
-323.3073
10.77079
_Iyear_1998 | -209.5504
88.12006
-2.38
0.019
-384.5149
-34.58598
_Iyear_1999 | -205.5174
96.02574
-2.14
0.035
-396.1788
-14.85609
_Iyear_2000 | -244.8052
97.93137
-2.50
0.014
-439.2502
-50.36013
_Iyear_2001 | -98.76333
132.3419
-0.75
0.457
-361.5313
164.0046
_Iyear_2002 | -147.1242
118.1699
-1.25
0.216
-381.7534
87.50497
_Iyear_2003 | -168.9311
103.9054
-1.63
0.107
-375.2376
37.37551
_Iyear_2004 | -195.7095
109.0201
-1.80
0.076
-412.1714
20.75241
_Iyear_2005 | -268.0949
117.4786
-2.28
0.025
-501.3514
-34.83836
_Iyear_2006 | -367.2309
95.27106
-3.85
0.000
-556.3938
-178.0679
_Iyear_2007 | -235.5673
174.6601
-1.35
0.181
-582.359
111.2244
_Iyear_2008 | -199.7984
116.3353
-1.72
0.089
-430.785
31.18808
_Iyear_2009 | -301.3504
141.7787
-2.13
0.036
-582.8554
-19.84542
_Iyear_2010 | -265.2107
113.0739
-2.35
0.021
-489.7215
-40.69985
_cons | -880.8093
760.3566
-1.16
0.250
-2390.515
628.8965
------------------------------------------------------------------------------
4. FE/RE models
Number of obs
Number of groups
=
=
127
8
R-sq:

avg =
max =
15
15.9
16
within = 0.9941
between = 0.9908
overall = 0.9918
corr(u_i, Xb)
= 0.3384
F(10,109)
Prob > F
=
=
1832.40
0.0000
-----------------------------------------------------------------------------fdik |
Coef.
Std. Err.
t
P>|t|
-------------+---------------------------------------------------------------fdia |
5.265827
.0748263
70.37
0.000
5.117524
5.41413
aida |
.029585
.0745584
0.40
0.692
-.1181873
.1773572
aidk | -.1572828
.2204934
-0.71
0.477
-.5942935
.2797279
gdp | -.1953439
.7275726
-0.27
0.789
-1.637369
1.246681
39
bop | -4.840637
3.285552
-1.47
0.144
-11.35249
1.67122
s | -.4659532
.4294811
-1.08
0.280
-1.317171
.3852645
hdi |
448.464
390.9469
1.15
0.254
-326.3801
1223.308
pop | -.6414817
3.898563
-0.16
0.870
-8.368307
7.085343
infla |
.3537186
.3023647
1.17
0.245
-.2455585
.9529956
lagfdik | -.1081347
.0205067
-5.27
0.000
-.1487783
-.0674911
_cons | -293.4201
329.8004
-0.89
0.376
-947.0737
360.2335
-------------+---------------------------------------------------------------sigma_u | 199.56759
sigma_e | 180.59799
rho | .54977435
-----------------------------------------------------------------------------F test that all u_i=0:
F(7, 109) =
5.69
Prob > F = 0.0000
. estimates store FIXED
. xtreg fdik fdia aida aidk gdp bop s hdi pop infla lagfdik, re
Random-effects GLS regression
Number of obs
Number of groups
=
=
127
8
R-sq:

avg =
max =
15
15.9
16
within = 0.9932
between = 0.9980
overall = 0.9947
Random effects u_i ~ Gaussian

corr(u_i, X)
= 0 (assumed)
Wald chi2(10)
Prob > chi2
=
=
21572.91
0.0000
-----------------------------------------------------------------------------fdik |
Coef.
Std. Err.
z
P>|z|
-------------+---------------------------------------------------------------fdia |
5.237567
.0837154
62.56
0.000
5.073488
5.401646
aida | -.0756591
.0616294
-1.23
0.220
-.1964505
.0451323
aidk |
-.43269
.2333102
-1.85
0.064
-.8899697
.0245896
gdp | -1.713865
.4977064
-3.44
0.001
-2.689352
-.7383787
bop | -.0229533
3.244583
-0.01
0.994
-6.38222
6.336313
s | -.4778182
.4431746
-1.08
0.281
-1.346425
.390788
hdi |
121.3234
239.2368
0.51
0.612
-347.5721
590.219
pop |
1.634705
.4466665
3.66
0.000
.7592549
2.510155
infla |
.6893927
.2382594
2.89
0.004
.222413
1.156372
lagfdik | -.1208659
.019442
-6.22
0.000
-.1589715
-.0827604
_cons | -97.96013
149.77
-0.65
0.513
-391.5039
195.5836
-------------+---------------------------------------------------------------sigma_u |
0
sigma_e | 180.59799
rho |
0
-----------------------------------------------------------------------------. estimates store RANDOM
. hausman FIXED RANDOM
Note: the rank of the differenced variance matrix (9) does not equal the number
of coefficients being tested (10); be sure
this is what you expect, or there may be problems computing the test.
Examine the output of your estimators for
anything unexpected and possibly consider scaling your variables so
that the coefficients are on a similar scale.
---- Coefficients ---|
(b)
(B)
(b-B)
sqrt(diag(V_b-V_B))
|
FIXED
RANDOM
Difference
S.E.
-------------+---------------------------------------------------------------fdia |
5.265827
5.237567
.0282603
.
aida |
.029585
-.0756591
.105244
.0419615
aidk |
-.1572828
-.43269
.2754073
.
gdp |
-.1953439
-1.713865
1.518521
.5307072
bop |
-4.840637
-.0229533
-4.817684
.5172334
s |
-.4659532
-.4778182
.011865
.
hdi |
448.464
121.3234
327.1405
309.201
pop |
-.6414817
1.634705
-2.276187
3.872891
infla |
.3537186
.6893927
-.3356741
.1861636
lagfdik |
-.1081347
-.1208659
.0127313
.0065218
-----------------------------------------------------------------------------b = consistent under Ho and Ha; obtained from xtreg
B = inconsistent under Ha, efficient under Ho; obtained from xtreg
40
Test:
Ho:
difference in coefficients not systematic

chi2(9) = (b-B)'[(V_b-V_B)^(-1)](b-B)
=
49.79
Prob>chi2 =
0.0000
(V_b-V_B is not positive definite)
5. 2SLS
. xi: ivregress 2sls fdik fdia gdp bop s infla lagfdik i.country i.year (aidk=
aida hdi pop), vce (robust)
i.country
_Icountry_1-8
i.year
_Iyear_1995-2010
Instrumental variables (2SLS) regression
Number of obs
Wald chi2(29)
Prob > chi2
R-squared
Root MSE
=
127
= 7848.48
= 0.0000
= 0.9962
= 164.13
-----------------------------------------------------------------------------|
Robust
fdik |
Coef.
Std. Err.
z
P>|z|
-------------+---------------------------------------------------------------aidk |
.365944
.3457708
1.06
0.290
-.3117544
1.043642
fdia |
5.275206
.137554
38.35
0.000
5.005605
5.544806
gdp |
-.03536
.697027
-0.05
0.960
-1.401508
1.330788
bop | -3.883426
3.356176
-1.16
0.247
-10.46141
2.694557
s | -.5759026
1.026894
-0.56
0.575
-2.588578
1.436773
infla |
.5449874
.7126974
0.76
0.444
-.8518738
1.941849
lagfdik | -.1214462
.041677
-2.91
0.004
-.2031316
-.0397607
_Icountry_2 | -32.94913
81.29557
-0.41
0.685
-192.2855
126.3873
_Icountry_3 | -28.36329
83.33979
-0.34
0.734
-191.7063
134.9797
_Icountry_4 |
254.9483
178.1031
1.43
0.152
-94.12738
604.0239
_Icountry_5 |
67.0228
68.38112
0.98
0.327
-67.00174
201.0473
_Icountry_6 | -165.8551
54.241
-3.06
0.002
-272.1655
-59.54472
_Icountry_7 | -327.7702
47.99942
-6.83
0.000
-421.8474
-233.6931
_Icountry_8 |
-261.036
99.06572
-2.63
0.008
-455.2013
-66.87078
_Iyear_1996 | -134.3955
75.95101
-1.77
0.077
-283.2567
14.46578
_Iyear_1997 | -91.30764
75.04342
-1.22
0.224
-238.39
55.77476
_Iyear_1998 | -140.3063
77.53194
-1.81
0.070
-292.2661
11.6535
_Iyear_1999 | -160.2621
83.29842
-1.92
0.054
-323.524
2.999849
_Iyear_2000 | -120.8747
94.73
-1.28
0.202
-306.5421
64.79264
_Iyear_2001 | -29.72452
103.7509
-0.29
0.774
-233.0725
173.6235
_Iyear_2002 | -43.97234
96.0431
-0.46
0.647
-232.2134
144.2687
_Iyear_2003 | -49.48728
89.36801
-0.55
0.580
-224.6454
125.6708
_Iyear_2004 |
-67.5958
90.08821
-0.75
0.453
-244.1654
108.9738
_Iyear_2005 | -130.2547
93.13816
-1.40
0.162
-312.8022
52.29269
_Iyear_2006 | -186.0564
83.63181
-2.22
0.026
-349.9718
-22.14109
_Iyear_2007 | -76.68261
145.077
-0.53
0.597
-361.0282
207.663
105.2958
-0.97
0.334
-308.059
104.6928
_Iyear_2008 | -101.6831
_Iyear_2009 | -209.3674
126.4222
-1.66
0.098
-457.1504
38.41566
_Iyear_2010 | -168.6602
109.7717
-1.54
0.124
-383.8087
46.48831
_cons |
56.66896
122.4495
0.46
0.644
-183.3276
296.6655
-----------------------------------------------------------------------------Instrumented: aidk
Instruments:
fdia gdp bop s infla lagfdik _Icountry_2 _Icountry_3
_Icountry_4 _Icountry_5 _Icountry_6 _Icountry_7 _Icountry_8
_Iyear_1996 _Iyear_1997 _Iyear_1998 _Iyear_1999 _Iyear_2000
aida hdi pop
. xi: ivregress 2sls fdik fdia gdp bop s infla lagfdik i.country i.year (aidk=
aida hdi pop), vce (robust) first
i.country
_Icountry_1-8
i.year
_Iyear_1995-2010
First-stage regressions
----------------------Number of obs
=
F( 31,
95) =
Prob > F
=
127
12.82
0.0000
41
R-squared
Adj R-squared
Root MSE
=
=
=
0.6958
0.5965
78.0576
-----------------------------------------------------------------------------|
Robust
aidk |
Coef.
Std. Err.
t
P>|t|
-------------+---------------------------------------------------------------fdia |
.0132256
.0113393
1.17
0.246
-.0092857
.0357369
gdp |
.2370975
.4439004
0.53
0.595
-.6441562
1.118351
bop |
1.990006
2.043794
0.97
0.333
-2.067439
6.04745
s | -.1081177
.0835845
-1.29
0.199
-.274054
.0578185
infla |
.1610581
.084145
1.91
0.059
-.0059909
.3281071
lagfdik | -.0089388
.0051734
-1.73
0.087
-.0192094
.0013318
_Icountry_2 | -397.2809
335.0539
-1.19
0.239
-1062.447
267.8853
_Icountry_3 | -412.7739
347.638
-1.19
0.238
-1102.923
277.3747
_Icountry_4 | -390.9655
264.4346
-1.48
0.143
-915.9345
134.0034
_Icountry_5 | -487.5525
322.5936
-1.51
0.134
-1127.982
152.8767
_Icountry_6 | -263.9375
210.5947
-1.25
0.213
-682.0208
154.1457
_Icountry_7 | -365.0384
283.5315
-1.29
0.201
-927.9196
197.8428
_Icountry_8 | -154.7559
224.5134
-0.69
0.492
-600.4714
290.9595
_Iyear_1996 |
11.54945
38.98828
0.30
0.768
-65.85207
88.95097
_Iyear_1997 | -57.93269
37.71147
-1.54
0.128
-132.7994
16.93405
_Iyear_1998 | -30.53556
36.20092
-0.84
0.401
-102.4035
41.33235
_Iyear_1999 |
8.4385
66.54437
0.13
0.899
-123.6688
140.5458
_Iyear_2000 | -99.01842
44.44722
-2.23
0.028
-187.2573
-10.77954
_Iyear_2001 | -4.751173
44.78318
-0.11
0.916
-93.65704
84.15469
_Iyear_2002 | -41.09087
42.94645
-0.96
0.341
-126.3503
44.16861
_Iyear_2003 | -49.88857
41.68241
-1.20
0.234
-132.6386
32.86148
_Iyear_2004 | -54.13739
47.09276
-1.15
0.253
-147.6283
39.35355
_Iyear_2005 | -50.27199
45.59979
-1.10
0.273
-140.799
40.25503
_Iyear_2006 | -97.99766
50.59525
-1.94
0.056
-198.4419
2.446611
_Iyear_2007 | -56.23098
50.61008
-1.11
0.269
-156.7047
44.24273
_Iyear_2008 | -42.46308
42.12743
-1.01
0.316
-126.0966
41.17044
_Iyear_2009 | -56.51236
42.77827
-1.32
0.190
-141.438
28.41323
_Iyear_2010 | -57.96341
37.74526
-1.54
0.128
-132.8972
16.97041
aida |
.107984
.0362373
2.98
0.004
.0360439
.1799241
hdi |
197.392
251.8047
0.78
0.435
-302.5037
697.2876
pop | -2.096124
1.81476
-1.16
0.251
-5.698878
1.50663
_cons |
369.0136
390.0732
0.95
0.347
-405.3796
1143.407
------------------------------------------------------------------------------
Instrumental variables (2SLS) regression
Number of obs
Wald chi2(29)
Prob > chi2
R-squared
Root MSE
=
127
= 7848.48
= 0.0000
= 0.9962
= 164.13
-----------------------------------------------------------------------------|
Robust
fdik |
Coef.
Std. Err.
z
P>|z|
-------------+---------------------------------------------------------------aidk |
.365944
.3457708
1.06
0.290
-.3117544
1.043642
fdia |
5.275206
.137554
38.35
0.000
5.005605
5.544806
gdp |
-.03536
.697027
-0.05
0.960
-1.401508
1.330788
bop | -3.883426
3.356176
-1.16
0.247
-10.46141
2.694557
s | -.5759026
1.026894
-0.56
0.575
-2.588578
1.436773
infla |
.5449874
.7126974
0.76
0.444
-.8518738
1.941849
lagfdik | -.1214462
.041677
-2.91
0.004
-.2031316
-.0397607
_Icountry_2 | -32.94913
81.29557
-0.41
0.685
-192.2855
126.3873
_Icountry_3 | -28.36329
83.33979
-0.34
0.734
-191.7063
134.9797
_Icountry_4 |
254.9483
178.1031
1.43
0.152
-94.12738
604.0239
_Icountry_5 |
67.0228
68.38112
0.98
0.327
-67.00174
201.0473
_Icountry_6 | -165.8551
54.241
-3.06
0.002
-272.1655
-59.54472
_Icountry_7 | -327.7702
47.99942
-6.83
0.000
-421.8474
-233.6931
_Icountry_8 |
-261.036
99.06572
-2.63
0.008
-455.2013
-66.87078
_Iyear_1996 | -134.3955
75.95101
-1.77
0.077
-283.2567
14.46578
_Iyear_1997 | -91.30764
75.04342
-1.22
0.224
-238.39
55.77476
_Iyear_1998 | -140.3063
77.53194
-1.81
0.070
-292.2661
11.6535
_Iyear_1999 | -160.2621
83.29842
-1.92
0.054
-323.524
2.999849
_Iyear_2000 | -120.8747
94.73
-1.28
0.202
-306.5421
64.79264
_Iyear_2001 | -29.72452
103.7509
-0.29
0.774
-233.0725
173.6235
_Iyear_2002 | -43.97234
96.0431
-0.46
0.647
-232.2134
144.2687
_Iyear_2003 | -49.48728
89.36801
-0.55
0.580
-224.6454
125.6708
_Iyear_2004 |
-67.5958
90.08821
-0.75
0.453
-244.1654
108.9738
42
_Iyear_2005 | -130.2547
93.13816
-1.40
0.162
-312.8022
52.29269
_Iyear_2006 | -186.0564
83.63181
-2.22
0.026
-349.9718
-22.14109
_Iyear_2007 | -76.68261
145.077
-0.53
0.597
-361.0282
207.663
_Iyear_2008 | -101.6831
105.2958
-0.97
0.334
-308.059
104.6928
_Iyear_2009 | -209.3674
126.4222
-1.66
0.098
-457.1504
38.41566
_Iyear_2010 | -168.6602
109.7717
-1.54
0.124
-383.8087
46.48831
_cons |
56.66896
122.4495
0.46
0.644
-183.3276
296.6655
-----------------------------------------------------------------------------Instrumented: aidk
Instruments:
fdia gdp bop s infla lagfdik _Icountry_2 _Icountry_3
_Icountry_4 _Icountry_5 _Icountry_6 _Icountry_7 _Icountry_8
aida hdi pop
6. GMM model including country and year effects

. xi: xtabond fdik fdia aida aidk Dgdp bop Ds Dhdi Dpop Dinfla lagfdik
i.country i.year,lags(1) endog(Dgdp bop Dpop Dhdi D
> s fdia Dinfla) artests(2)
i.country
_Icountry_1-8
i.year
_Iyear_1995-2010
note: _Icountry_2 dropped from div() because of collinearity
note: fdia dropped because of collinearity
note: Dgdp dropped because of collinearity
note: bop dropped because of collinearity
note: Ds dropped because of collinearity
note: Dhdi dropped because of collinearity
note: Dpop dropped because of collinearity
note: Dinfla dropped because of collinearity
note: lagfdik dropped because of collinearity
note: _Iyear_1996 dropped because of collinearity
Arellano-Bond dynamic panel-data estimation
Time variable: year
Number of obs
Number of groups
Obs per group:
Number of instruments =
113
Wald chi2(24)
Prob > chi2
=
=
112
8
min =
avg =
max =
14
14
14
=
=
42443.86
0.0000
One-step results
-----------------------------------------------------------------------------fdik |
Coef.
Std. Err.
z
P>|z|
-------------+---------------------------------------------------------------fdik |
L1. | -.0925815
.0105692
-8.76
0.000
-.1132968
-.0718662
|
Dgdp |
-.484664
.6251431
-0.78
0.438
-1.709922
.7405939
bop |
1.757468
2.825973
0.62
0.534
-3.781337
7.296273
Dpop | -96.69941
44.87712
-2.15
0.031
-184.6569
-8.741877
Dhdi | -704.4586
578.7534
-1.22
0.224
-1838.794
429.8772
Ds | -.8772231
.2433398
-3.60
0.000
-1.35416
-.4002858
fdia |
4.946434
.0673946
73.40
0.000
4.814343
5.078525
Dinfla |
5.173003
.5432816
9.52
0.000
4.10819
6.237815
aida |
.0915501
.0513179
1.78
0.074
-.0090312
.1921314
aidk | -.2513535
.1541668
-1.63
0.103
-.5535149
.0508079
_Icountry_2 | (omitted)
_Iyear_1997 | -23.93757
60.42684
-0.40
0.692
-142.372
94.49685
_Iyear_1998 | -111.2851
63.85421
-1.74
0.081
-236.437
13.86687
43
_Iyear_1999 | -70.67638
61.29011
-1.15
0.249
-190.8028
49.45004
_Iyear_2000 | -36.64644
64.53837
-0.57
0.570
-163.1393
89.84643
_Iyear_2001 |
52.5439
61.18118
0.86
0.390
-67.36901
172.4568
_Iyear_2002 | -24.06495
63.76665
-0.38
0.706
-149.0453
100.9154
_Iyear_2003 |
14.32074
62.15292
0.23
0.818
-107.4967
136.1382
_Iyear_2004 |
47.0675
61.21303
0.77
0.442
-72.90783
167.0428
_Iyear_2005 | -15.58507
60.78483
-0.26
0.798
-134.7212
103.551
_Iyear_2006 | -108.2638
68.51926
-1.58
0.114
-242.5591
26.03144
_Iyear_2007 | -46.52771
66.6677
-0.70
0.485
-177.194
84.13857
_Iyear_2008 | -146.7719
83.59141
-1.76
0.079
-310.608
17.06426
_Iyear_2009 | -87.06649
77.09355
-1.13
0.259
-238.1671
64.03408
_Iyear_2010 | -60.63151
67.46406
-0.90
0.369
-192.8586
71.59562
_cons |
23.44438
61.12442
0.38
0.701
-96.35728
143.246
-----------------------------------------------------------------------------Instruments for differenced equation
GMM-type: L(2/.).fdik L(2/.).Dgdp L(2/.).bop L(2/.).Dpop L(2/.).Dhdi
L(2/.).Ds L(2/.).fdia L(2/.).Dinfla
Standard: D.fdia D.aida D.aidk D.Dgdp D.bop D.Ds D.Dhdi D.Dpop D.Dinfla
D.lagfdik D._Iyear_1996 D._Iyear_1997
D._Iyear_1998
D._Iyear_1999
D._Iyear_2000
D._Iyear_2001
D._Iyear_2002 D._Iyear_2003 D._Iyear_2004
D._Iyear_2005
D._Iyear_2006
D._Iyear_2007
D._Iyear_2008
D._Iyear_2009 D._Iyear_2010
Instruments for level equation
Standard: _cons
Postestimation
+ autocorrelation test
. estat abond
artests not computed for one-step system estimator with vce(gmm)
cannot calculate AR tests with dropped variables
Arellano-Bond test for zero autocorrelation in first-differenced errors
cannot calculate test with dropped variables
+-----------------------+
|Order | z
Prob > z|
|------+----------------|
+-----------------------+
H0: no autocorrelation
+ overidentifying restricions test

. estat sargan
Sargan test of overidentifying restrictions
H0: overidentifying restrictions are valid
cannot calculate Sargan test with dropped variables
chi2(88)
Prob > chi2
=
=
.
.
7. GMM model without country and year effects

. xtabond fdik fdia aida aidk Dgdp bop Ds Dhdi Dpop Dinfla lagfdik, vce(robust)
note: lagfdik dropped because of collinearity
Arellano-Bond dynamic panel-data estimation
Time variable: year
Number of obs
Number of groups
Obs per group:
Number of instruments =
95
Wald chi2(8)
Prob > chi2
=
=
112
8
min =
avg =
max =
14
14
14
=
=
1.84e+13
0.0000
One-step results
(Std. Err. adjusted for clustering on country)
-----------------------------------------------------------------------------|
Robust
fdik |
Coef.
Std. Err.
z
P>|z|
-------------+---------------------------------------------------------------fdik |
44
L1. | -.0978983
.0021155
-46.28
0.000
-.1020447
-.0937519
|
fdia |
4.946891
.0218145
226.77
0.000
4.904135
4.989646
aida |
.0695371
.0405884
1.71
0.087
-.0100148
.149089
aidk | -.2305563
.1028071
-2.24
0.025
-.4320545
-.0290581
Dgdp |
.1905667
.5141329
0.37
0.711
-.8171152
1.198249
bop | -.9810359
1.127324
-0.87
0.384
-3.19055
1.228479
Ds | -1.174967
.0633551
-18.55
0.000
-1.299141
-1.050794
Dhdi |
432.4764
509.8288
0.85
0.396
-566.7696
1431.722
Dpop | -123.2232
98.4091
-1.25
0.211
-316.1015
69.65508
Dinfla |
4.715908
.521552
9.04
0.000
3.693685
5.738131
_cons |
39.05201
141.5108
0.28
0.783
-238.304
316.408
-----------------------------------------------------------------------------Instruments for differenced equation
GMM-type: L(2/.).fdik
Standard: D.fdia D.aida D.aidk D.Dgdp D.bop D.Ds D.Dhdi D.Dpop D.Dinfla
D.lagfdik
Instruments for level equation
Standard: _cons
Postestimation
+ autocorrelation test
. estat abond
artests not computed for one-step system estimator with vce(gmm)
Arellano-Bond test for zero autocorrelation in first-differenced errors
+-----------------------+
|Order | z
Prob > z|
|------+----------------|
|
1 |-1.4059 0.1597 |
|
2 |-1.0025 0.3161 |
+-----------------------+
H0: no autocorrelation
+ overidentifying restricions test

. xtabond fdik fdia aida aidk Dgdp bop Ds Dhdi Dpop Dinfla lagfdik
. estat sargan
Sargan test of overidentifying restrictions
H0: overidentifying restrictions are valid
chi2(84)
Prob > chi2
=
=
110.9239
0.0262
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SECO / WTI Academic Cooperation Project

Working Paper Series 9 / 2012

On the Impacts of ODA on FDI:

Superviser: Dr. Anirudh Shingal

SECO / WTI Academic Cooperation Project

Working Paper Series 9 / 2012

countries: use the Official Development Assistance (ODA) as a tool to promote

SECO / WTI Academic Cooperation Project

Working Paper Series 9 / 2012

SECO / WTI Academic Cooperation Project

Working Paper Series 9 / 2012

SECO / WTI Academic Cooperation Project

Working Paper Series 9 / 2012

The relationship between aid and FDI appears to be controversial and

SECO / WTI Academic Cooperation Project

Working Paper Series 9 / 2012

Allowing complementary aid as well as investment to have a direct

SECO / WTI Academic Cooperation Project

Working Paper Series 9 / 2012

where n is the population growth rate and is a fixed depreciation rate.

where r is defined as a gross world real rate of return, r w + .

fdiK are therefore

SECO / WTI Academic Cooperation Project

Working Paper Series 9 / 2012

If mobility of capital is imperfect, MPK should be allowed to deviate

and the capital stock in (5) should be redefined accordingly:

While this renders the effect of aid invested in physical capital

and fdiA will also depend on the risk

premium and thus on country-specific characteristics.

3. FDI and ODA in ASEAN countries: an overview

SECO / WTI Academic Cooperation Project

Working Paper Series 9 / 2012

Source: database on ODA: http://stats.oecd.org; on FDI: http://stats.unctad.org

SECO / WTI Academic Cooperation Project

Working Paper Series 9 / 2012

Turning to FDI flows to South-East Asia or the ASEAN sub region

Source: database on ODA: http://stats.oecd.org; on FDI: http://stats.unctad.org

SECO / WTI Academic Cooperation Project

Working Paper Series 9 / 2012

industries in Myanmar, in telecommunications and textiles and garments

Source: database on ODA: http://stats.oecd.org; on FDI: http://stats.unctad.org

In 2010, FDI to ASEAN surged to $79 billion, surpassing 2007s

SECO / WTI Academic Cooperation Project

Working Paper Series 9 / 2012

Source: database on ODA: http://stats.oecd.org; on FDI: http://stats.unctad.org

In Singapore, which accounted for half of ASEANs FDI, inflows

SECO / WTI Academic Cooperation Project

Working Paper Series 9 / 2012

SECO / WTI Academic Cooperation Project

Working Paper Series 9 / 2012

Table 1: FDI of ASEAN countries in 2010, ranking by sectors

Table 2: ODA of ASEAN countries in 2010, ranking by sectors

SECO / WTI Academic Cooperation Project

Working Paper Series 9 / 2012

4. The empirical model

To explain fdik - the amount of fdi invested in physical capital in a

SECO / WTI Academic Cooperation Project

Working Paper Series 9 / 2012

SECO / WTI Academic Cooperation Project

Working Paper Series 9 / 2012

SECO / WTI Academic Cooperation Project

Working Paper Series 9 / 2012

Figure 4. Compositions of ODA of ASEAN countries