Foreign Aid, FDI, Economic Freedom and Economic Growth in Asian Countries

This study examines the effectiveness of foreign aid, foreign direct investment, and economic freedom for selected 28 Asian countries in a panel framework. The model includes foreign aid, foreign direct investment, economic freedom, labor force, and capital stock. The estimation procedure was carried out on pooled annual time series data for the period 1998-2007. For the purpose of analysis, we used static and dynamic panel data techniques. The results indicated that an increase in the fiscal freedom, financial freedom and domestic capital stock were significant factors positively affecting economic growth. Freedom from corruption, inflow of foreign direct investment and foreign aid were significant factors negatively affecting economic growth. Further, we found that life expectancy played a significant and positive role in economic growth. Foreign aid had a non-linear impact (negative impact of high aid flows) upon economic growth.