Egoistic vs. Altruistic Incentives in Promoting Growth : From Developing Nations Perspective

University essay from Högskolan i Jönköping/IHH, Economics, Finance and Statistics; Högskolan i Jönköping/IHH, Economics, Finance and Statistics


Developing countries are dependent upon foreign capital since they lack adequate domestic means to save and invest in order to grow and develop. This thesis aims to evaluate the role of foreign capital inflows in enhancing economic growth in a sample of 90 developing countries between the years 1991 and 2006. Even though FDI is recognized as the most attractive key in economic development strategies, numerous international help organizations call for increased ODA flows since many developing countries do not seem to benefit from FDI. This study will closely look into the issue where FDI and ODA are incorporated into the same model to identify the different effects they bring upon economic growth. Is capital given by the altruistic intention to assist developing nations in the form of ODA more beneficial than capital given through FDI by Multi-National Corporations (MNC) with their egoistic profit-seeking incentives, in the matter of enhancing economic growth? The obtained results from our cross-sectional OLS-regression are coherent with previous studies where FDI promotes economic growth, while ODA has a negative impact. This implies that FDI do actually play a more important role in developing countries than ODA in increasing growth in GDP per capita.

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