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Does German Development Aid Promote German Exports?

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Author Info
Inmaculada Martínez Zarzoso () (Universität Göttingen)
Felictas Nowak-Lehmann D. () (Universität Göttingen)
Stephan Klasen () (Universität Göttingen)
Mario Larch (Ifo Institute)

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Abstract

This paper uses a static and dynamic gravity model of trade to investigate the link between German development aid and exports from Germany to the recipient countries. The findings indicate that in the long run,German aid is associated with an increase in exports of goods that is larger than the aid flow, with a point estimate of 140 percent of the aid given. In addition, the evolution of the estimated coefficients over time shows an effect that is consistently positive but which oscillates over time. Interestingly, in the period from 2001 to 2005, a steady increase in the effect of aid on trade can be observed following a decrease in this phenomenon in the second half of the nineties. The paper also distinguishes among recipient countries and finds that the return on aid measured by German exports is higher for aid to countries considered “strategic aid recipients” by the German government.

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Publisher Info
Paper provided by Ibero-America Institute for Economic Research in its series Ibero America Institute for Econ. Research (IAI) Discussion Papers with number 170.

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Length: 37 pages
Date of creation: 10 Apr 2008
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Handle: RePEc:got:iaidps:170

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Related research
Keywords: International Trade Foreign Aid Germany

Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General
F35 - International Economics - - International Finance - - - Foreign Aid

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References listed on IDEAS
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  4. Slobodan Djajić & Sajal Lahiri & Pascalis Raimondos-Møller, 2004. "Logic of Aid in an Intertemporal Setting," Review of International Economics, Blackwell Publishing, vol. 12(1), pages 151-161, 02. [Downloadable!] (restricted)
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  5. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March. [Downloadable!] (restricted)
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  6. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August. [Downloadable!] (restricted)
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  7. Brecher, Richard A & Bhagwati, Jagdish N, 1981. "Foreign Ownership and the Theory of Trade and Welfare," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 497-511, June. [Downloadable!] (restricted)
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