A panel dataset of 28 African countries spanning the period 2004–2014 is used to empirically analyze the effects of foreign direct investment (FDI) and financial development on new business density, a critical measure of entrepreneurship. Panel fixed effects and dynamic panel regressions were estimated while controlling for other important factors that influence entrepreneurship. The paper finds that FDI enhances entrepreneurship in African countries with more developed financial institutions and markets. These countries have greater absorptive capacity needed to benefit from potential FDI spillovers. In addition, the results also show that improving all the different dimensions of financial development (depth, access, and efficiency) is important for stimulating new entrepreneurial activity.
This paper analyzes the effect of foreign aid on export diversification for a sample of developing countries while controlling for the effects of other factors that determine export diversification. We find that foreign aid not exceeding 20% of a country's GDP significantly promotes export diversification, while foreign aid in excess of 20% of GDP significantly impedes export diversification. The latter result corroborates evidence from related literature, which has shown that foreign aid can have an anti-export bias due to a Dutch disease effect. However, our results show that aid as a percent of GDP is below 20% in most low-income countries. This implies that in many low-income countries, varying amounts of additional aid can be used to enhance export diversification without causing a Dutch disease effect. As in the previous literature, we find that the level of development, infrastructure, transactions costs, and natural resources significantly affect export diversification. Our results are robust to the use of two different export diversification measures and different sub-samples.foreign aid, export diversification, developing countries,
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