Clearing Hurdles: Foreign Aid, Expropriation Risk, and FDI Inflows in Sub-Saharan African Countries

Clearing Hurdles: Foreign Aid, Expropriation Risk, and FDI Inflows in Sub-Saharan African Countries

Existing literature has focused on analyzing various determinants of foreign aid disbursement. From the aid-for-policy framework, however, this paper concentrates on the strategic usage of foreign aid by donor countries to influence recipient countries’ adverse policies. Through foreign aid, donor countries expect to earn favorable policy concessions from recipients to promote their economic interests with FDI. Using a dataset containing 28 sub-Saharan African countries for the period 1990-2021, I find that foreign aid mitigates unfavorable investment conditions of the recipients and it further leads to boosting donor countries’ FDI. This result suggests that foreign aid is used strategically, with its main focus being to increase donors’ economic interests in the region.