Journal of Economics and Management Volume 22, No. 1 March, 2026

The Impact of Foreign Aid and Foreign Direct Investment on Economic Growth: The Case of Taiwan's Caribbean Allies

Mangal Tricia Karen Vernessa

Banking and Finance, Tamkang University, Taiwan

Abstract

This research seeks to recognize the role of foreign aid (AID) and foreign direct investment (FDI) in supporting the economic growth of small island developing nations in the Caribbean region. Four Caribbean islands that maintain diplomatic ties with Taiwan, specifically, St. Lucia, St. Kitts and Nevis, St. Vincent and the Grenadines, and Haiti are the focus of this study. Various tests were implemented in order to ascertain the connection between economic growth, FDI, and AID, using annual panel data from 2000 to 2021. Due to the frequent endogeneity issue that arises within the panel data used, the Generalized Method of Moments (GMM) model was utilized. Based on the findings, both FDI, and trade stand as significant drivers of economic growth for these Caribbean islands. Moreover, the correlation between FDI and gross domestic product (GDP) is notably positive. Similarly, a positive link was recognized between trade and economic growth. On the other hand, a significant negative correlation exists between foreign aid and economic growth. This finding highlights the potential need for improved oversight of aid inflows in order to achieve the anticipated economic growth. Furthermore, in the wake of these findings, fostering an accommodating economic climate becomes paramount, especially for attracting FDI and amplifying trade—both of which are pivotal for the economic development.

Keywords：Foreign Direct Investment, Foreign Aid, Economic Growth, Gross Domestic Product

JEL Classifications：F35, F21, F19

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