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Aid and Trade - A Donor’s Perspective

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Author Info
Felicitas Nowak-Lehmann D. (Georg-August University Göttingen, Germany)
Inmaculada Martínez Zarzoso (Georg-August University Göttingen, Germany)
Stephan Klasen (Georg-August University Göttingen, Germany)
Dierk Herzer (Johann-Wolfgang Goethe University Frankfurt, Germany)

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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 to US$ 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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Publisher Info
Paper provided by Courant Research Centre PEG in its series Courant Research Centre: Poverty, Equity and Growth - Discussion Papers with number 7.

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Date of creation: 15 Jul 2009
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Handle: RePEc:got:gotcrc:007

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Related research
Keywords: trade; foreign aid; donors; time series based panel estimation techniques;

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Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General
F35 - International Economics - - International Finance - - - Foreign Aid
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Inmaculada Martínez Zarzoso & Felictas Nowak-Lehmann D. & Stephan Klasen & Mario Larch, 2008. "Does German Development Aid Promote German Exports?," Ibero America Institute for Econ. Research (IAI) Discussion Papers 170, Ibero-America Institute for Economic Research. [Downloadable!]
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