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This paper investigates the nexus between Japan's official development assistance and foreign direct investment inflows in Southeast Asian countries. An analysis of the geographical and sectoral decomposition of aid flows reveals that assistance programs were mainly allocated in the form of loans for economic infrastructure projects. This orientation attests that the needs of the recipient country are taken into account but also reveals that it is in keeping with a return on investment. Conditional logit analysis shows that Japanese aid flows did have a significant positive impact on private investors' location choice even though other profit-maximising factors such as agglomeration effects or the quality of infrastructure had a leading spill-over effect.
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