Caveat Emptor: Foreign Aid and Entrepreneurship

Abstract

In the last 60 years, the results of development aid have been mixed. Thus far, it has been mostly the aid recipient countries, which have been held responsible for aid’s shortcomings. That focus is misplaced, however, since the donor countries, through development aid, also export some of their own institutions and values to the recipient countries affecting the recipients’ rate of entrepreneurship and income. This study demonstrates how donor countries vary widely in both the type and quality of their institutions and values, leading to diverging economic outcomes. The results indicate that recipient countries should pay serious attention to who their development partner is. In particular, recipients would want to avoid aid from low institutional quality donors with perceived anti-market attitudes. Finally, it is argued that development aid might become more efficient if it moved away from the bilateral, towards the multilateral, mode.

Foreign aid and entrepreneurship in Africa: the role of remittances and institutional quality

“…In a recent theoretical analysis of Ovaska and Takashima (2020), foreign aid donors are varied in terms of institutional quality and type which may lead to divergence in the quality of entrepreneurial outcomes in an economy. Their discourse shows that recipient countries need to pay serious attention to their development partner and should endeavor to partner with donors that have high institutional quality by avoiding poor institutional partners with anti-market tactics.…”

“…Specifically, the influence is higher in the nexus between subjectivity insecurity, property rights, access to credit and entrepreneurial activity in developing countries; and between entrepreneurial activity and corruption in developed countries. Also, the conditional effect of financial development and governance quality increases formal entrepreneurship but decreases informal entrepreneurship (Omri 2020). A body of research suggests that institutions would lead to entrepreneurial development through economic growth and development.…”

“…Institutions must be put in place to ensure market security and transaction costs' reduction between economic agents (North 1990;Bruton et al 2010;Meyer et al 2014;Autio and Fu 2015). Institutional supports in this context are the clear rule and laws enforcement for a given system, control of corruption and other formal governance institutions (Moore et al 2020a, b;Ovaska and Takashima 2020). This next section builds on this framework to analyze the interaction among the variables.…”

“…Studies show that aggregate foreign aid hampers entrepreneurial technologies while aid on infrastructure does not significantly improve the level of entrepreneurship but increases business failure rate (Jia 2018). Ovaska and Takashima (2020) observe that aid recipient countries should always focus on institutional quality of the donors before accepting aids while bilateral and private aid reduce the levels of formal entrepreneurship (Moore et al 2020a, b). Likewise, remittances may improve necessity entrepreneurship due to lesser capital requirements for its start-up but have a negative correlation with innovative entrepreneurship which requires much start-up capital (Zheng and Musteen 2018).…”

Unemployment Blues: Analysis of the Dual Mediating Effects of Knowledge and Perception on Entrepreneurial Intentions in the Environment

“…The students who represent the sample come from different regions in Ghana and are assembled in a boarding school facility and they bring in different levels of entrepreneurship based on their backgrounds and experience. Drawing from various empirical evidences it is inferred that nations that are less stringent on adherence to such rule and regulation, ensuring tax rebates and offer customized preparatory exercises as well as counseling for budding business-oriented persons have the likelihood to increase the commencement of new businesses (Dana, 1990;Ovaska & Takashima, 2019).…”