Open Access Journal Article

Greasing the revolving door: foreign aid, governance, and private capital flows

by Ugochukwu Anyanwu a orcid  and  Amarachukwu Anyanwu b,* orcid
a
Department of Economics and Finance, LUISS Guido Carli University, Roma, Italy
b
Department of Financial and Business Systems, Lincoln University, Lincoln, New Zealand
*
Author to whom correspondence should be addressed.
EAL  2024, 45; 3(1), 45; https://doi.org/10.58567/eal03010002
Received: 9 July 2023 / Accepted: 21 August 2023 / Published Online: 15 March 2024
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Abstract

There is a considerable amount of debate on the impact of capital liberalization on economic performance. Using Three-Stage Least Squares (3SLS) estimation technique introduced by Zellner and Theil (1962), we synthesize studies on the determinants of governance and capital flows. We find evidence of a revolving door relationship. Foreign aid has a negative impact on governance and, thereby reduces capital inflows since bad governance hinders capital inflows. The need to fill the gap created by private capital outflows encourages inflow of foreign aid, which in turn harms governance. Therefore, capital liberalization could grease a revolving door and undermine economic development in the aid receiving countries.

Keywords: Capital Liberalization; Foreign Aid; Capital Flows; Governance; Three-Stage Least Squares;
Copyright: © 2024 by Anyanwu and Anyanwu. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

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ACS Style
Anyanwu, U.; Anyanwu, A. Greasing the revolving door: foreign aid, governance, and private capital flows. Economic Analysis Letters, 2024, 3, 45. https://doi.org/10.58567/eal03010002
AMA Style
Anyanwu U, Anyanwu A. Greasing the revolving door: foreign aid, governance, and private capital flows. Economic Analysis Letters; 2024, 3(1):45. https://doi.org/10.58567/eal03010002
Chicago/Turabian Style
Anyanwu, Ugochukwu; Anyanwu, Amarachukwu 2024. "Greasing the revolving door: foreign aid, governance, and private capital flows" Economic Analysis Letters 3, no.1:45. https://doi.org/10.58567/eal03010002
APA style
Anyanwu, U., & Anyanwu, A. (2024). Greasing the revolving door: foreign aid, governance, and private capital flows. Economic Analysis Letters, 3(1), 45. https://doi.org/10.58567/eal03010002

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