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Aid and Trade - A Donor's Perspective

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  • Felicitas Nowak-Lehmann D.
  • Inmaculada Martinez-Zarzoso
  • Stephan Klasen
  • Dierk Herzer

Abstract

One reason donors provide foreign aid is to support their exports to aid-recipient countries. Time series data for Germany suggests an average return of between US$1.04-$1.50 for each US dollar of aid spent by Germany. Although this is well below previous estimates, the value is robust to different specifications and econometric approaches. Interestingly, we find strong evidence of crowding out between bilateral donors in the sense that bilateral aid from other EU members significantly reduces exports from Germany to the recipients. The evidence suggests that, in the long run, aid causes exports and not vice versa. We discuss the implications these findings might have for aid volumes and allocation.

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Article provided by Taylor & Francis Journals in its journal Journal of Development Studies.

Volume (Year): 45 (2009)
Issue (Month): 7 ()
Pages: 1184-1202

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Handle: RePEc:taf:jdevst:v:45:y:2009:i:7:p:1184-1202

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Citations

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Cited by:
  1. Inmaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann D. & Stephan Klasen, 2010. "The Economic Benefits of Giving Aid in Terms of Donors` Exports," Ibero America Institute for Econ. Research (IAI) Discussion Papers 202, Ibero-America Institute for Economic Research.
  2. Philipp Hühne & Birgit Meyer & Peter Nunnenkamp, 2013. "Who Benefits from Aid for Trade? Comparing the Effects on Recipient versus Donor Exports," Kiel Working Papers 1852, Kiel Institute for the World Economy.
  3. Inmaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann D. & Stephan Klasen & Mario Larch, 2009. "Does German Development Aid Promote German Exports?," German Economic Review, Verein für Socialpolitik, vol. 10, pages 317-338, 08.
  4. Pincin, Jared, 2013. "Political power and aid tying practices in the development assistance committee countries," MPRA Paper 49806, University Library of Munich, Germany.
  5. José María, Larrú, 2012. "La relación entre la ayuda al desarrollo y la desigualdad. Evidencia y justificación teórica
    [Aid and inequality relationship. Evidence and theoretical justification]
    ," MPRA Paper 38857, University Library of Munich, Germany.
  6. Nowak-Lehmann D., Felicitas & Martínez-Zarzoso, Inmaculada & Cardozo, Adriana & Klasen, Stephan, 2010. "Foreign aid and recipient countries' exports: How important are improved bilateral trade relations?," Proceedings of the German Development Economics Conference, Hannover 2010 44, Verein für Socialpolitik, Research Committee Development Economics.
  7. Dierk Herzer & Oliver Morrissey, . "The Long-Run Effect of Aid on Domestic Output," Discussion Papers 09/01, University of Nottingham, CREDIT.

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