The Impact of different types of foreign capital inflows on economic growth of least developed countries
which external resource matter?
Least developed countries, a group of poorest countries in the world, are trapped under economic underdevelopment, unable to escape the deplorable state by themselves. A stimulating external force in the form of foreign capital inflows are, therefore, important source of capital for least developed countries. Among different types of foreign capital inflows, which external resource contributes most to economic growth for least developed countries is a key research question for this paper. I use panel data of 43 least developed countries from the period 2003 to 2014 to estimate the impact of different types of Official development assistance and Private capital on GDP per capita growth of least developed nations. Using random effect model, FDI proved to have significant positive effect on the economy, while all types ODAs showed no meaningful result. This paper implies that least developed countries should target toward attracting private FDI rather than government to government transfer of ODAs, as high corruption rate of governance and poor legal system are not the perfect environment for ODAs to unfold the worth.
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