The European Journal of Development Research

, Volume 26, Issue 5, pp 597–613 | Cite as

Does Aid for Education Attract Foreign Investors? An Empirical Analysis for Latin America

  • Julian DonaubauerEmail author
  • Dierk Herzer
  • Peter Nunnenkamp
Original Article


We address the question of whether foreign aid helps attract foreign direct investment (FDI). This could be achieved if well-targeted aid removed critical impediments to higher FDI inflows. In particular, we test the hypothesis that aid for education is an effective means to increase FDI flows to host countries in Latin America where schooling and education appear to be inadequate from the viewpoint of foreign investors. We employ panel data techniques covering 21 Latin American countries over the period from 1984 to 2008. We find that aid for education has a statistically significant positive effect on FDI. This effect is robust to potential outliers, sample selection within Latin America, alternative specifications and different estimation methods.


foreign aid foreign direct investment aid effectiveness human capital Latin America 


Nous abordons la question de savoir si l’aide internationale contribue à attirer les investissements étrangers directs (IDE). Des aides bien ciblées pourraient y parvenir en éliminant les obstacles majeurs à l’augmentation des flux d’IDE. Nous testons notamment l’hypothèse selon laquelle l’aide à l’éducation est un moyen efficace d’accroître les flux d’IDE à destination de certains pays d’Amérique latine où la scolarisation et l’éducation semblent inadéquates du point de vue des investisseurs étrangers. Nous mobilisons des techniques de données de panel couvrant 21 pays d’Amérique latine sur la période allant de 1984 à 2008. Nous constatons que l’aide à l’éducation a un effet positif statistiquement significatif sur les IDE. Ce résultat résiste aux valeurs aberrantes potentielles, aux biais d’échantillonnage au sein de l’Amérique latine, aux spécifications alternatives et aux différentes méthodes d’estimation.


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Copyright information

© European Association of Development Research and Training Institutes 2013

Authors and Affiliations

  • Julian Donaubauer
    • 1
    Email author
  • Dierk Herzer
    • 1
  • Peter Nunnenkamp
    • 2
  1. 1.Helmut Schmidt University HamburgHamburgGermany
  2. 2.Kiel Institute for the World EconomyKielGermany

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