The current literature has not made any connection between foreign aid and entrepreneurship. The purpose of this paper is to investigate if foreign aid influences entrepreneurial activities in a recipient country.
Using system generalized method of moments (Blundell and Bond, 1998) estimators with a panel of 38 recipient countries during 2005–2014, the author tests for 33 measures of entrepreneurial activities.
This paper finds that aggregate aid tends to only boost necessity-driven early-stage entrepreneurship and benefit low-income entrepreneurs. Aid to infrastructure promotes entrepreneurship driven by both opportunity and necessity motivations. It also incentivizes competition with homogeneous products. Additionally, evidence suggests that both aggregate aid and infrastructural aid discourage adoption of state-of-the-art technologies, raise business failure rate and are associated more with necessity-driven early-stage entrepreneurial activities for females.
This is the first research examining “aid and entrepreneurship” relation.
The author would like to give special thanks to Claudia Williamson for her help with this paper. The author also thank Adam Martin, Travis Wiseman, Randall Campbell, Brandon Cline, Cheng Li and Joshua Bedi for their contribution. The author appreciates the valuable comments provided by the editor-in-chief and an anonymous reviewer. Claudia Williamson is Associate Professor of Economics and the Drew Allen Endowed Fellow at Mississippi State University. She is also Co-Director of the Institute for Market Studies at Mississippi State University. Adam Martin is Political Economy Research Fellow at the Free Market Institute and Assistant Professor of Agricultural and Applied Economics in the College of Agricultural Sciences and Natural Resources at Texas Tech University. Travis Wiseman is Director and Clinical Assistant Professor of International Business at Mississippi State University. Randall Campbell is Professor of Economics at Mississippi State University. Brandon Cline is the John “Nutie” and Edie Dowdle Associate Professor of Finance at Mississippi State University. Cheng Li is Assistant Professor of Economics at Mississippi State University. Joshua Bedi is PhD Student in the Department of Economics and PhD Fellow of Mercatus Center at George Mason University.
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