Foreign Aid, Governance and Foreign Direct Investment: Evidence from East Africa

초록

This study examines how foreign aid and governance affect foreign direct investment (FDI) inflows in East Africa, focusing on whether institutional quality conditions the link between aid and FDI. FDI matters for economic development, but how aid and governance work together to attract it has received limited attention in the East African context. Using panel data from 13 East African countries over the period 1999–2023, our estimates show that foreign aid has a positive and statistically significant effect on FDI inflows. This effect is amplified by robust governance. The results suggest that the effectiveness of aid is closely tied to institutional quality, with stronger institutions enhancing the role of aid in attracting private investment. Drawing on the aid effectiveness and governance literature within a unified framework, the paper offers policy insights for East African countries pursuing durable, investment-driven development.

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