This paper investigates the process of GDP generation in Former Soviet Union (FSU) economies to provide understanding of the impact of technology channels on countries' efficiency. We apply a stochastic frontier approach to 15 FSU economies over the period 1995-2008, and we find that machinery imports and human capital improve a country's efficiency. Furthermore, we show that trade in capital goods and human capital also have a positive effect on total factor productivity (TFP), which, in turn, improves real GDP growth. Hence, our results suggest that FSU countries should improve public policies that provide incentives to invest in cross-country technology transfer and in domestic education in order to improve their economic growth. Additionally, our empirical evidence argues against the resource-curse hypothesis. We also show, by computing the efficiency change and technological change indices at the country level, that FSU economies are benefiting more from catching up to the best practice frontier than from exploiting technological progress.

There is a continuing debate on the effectiveness of development aid. One less obvious angle on this issue is the question of the likely impact of aid on foreign direct investment (FDI). This paper tests whether aid had any impact on incoming FDI in Central Asian economies during the period 1993–2008. A simple panel model suggests that (a) aid had a moderate complementary effect on inward FDI, (b) there was a crowding‐out effect such that domestic investment reduced FDI stocks, (c) natural resources were a key attraction for private capital, and (d) increases in development aid offset the crowding‐out effect of domestic capital on FDI. It is argued that donors should target aid to enhance the climate for inward investment.

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