Does foreign capital really matter for the host country agricultural production? Evidence from developing countries

Abstract

Despite the high flow of foreign assistance and foreign direct investment (FDI) to developing countries, the potential of agricultural production remains low and stagnant. Accordingly, it is interesting to know how each type of foreign capital (FDI and foreign aid) affects the agricultural output? And what are the most effective forms of aid that increase agricultural production? The main objective of this study is to give answers to these equations using data for 50 developing countries over the 1995–2015 period. Our results indicate, first, that the effect of FDI only (without foreign aid) has a positive and significant effect on agricultural production. Second, we found that the four forms of foreign aids [notably social-infrastructure-aid (SIA), investment aid, non-investment-aid, agriculture–forestry–fishing-aid (AFFA)] have positive and significant effects on agricultural production. Finally, when we introduced both variables in the model, we found that FDI and two types of foreign aids (SIA and AFFA) have positive and significant effects on agricultural production. In conclusion, the synergies inherent between FDI, SIA, AFFA, increase twice the agricultural production.