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Foreign Aid, Exports and Development in Euromed

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Abstract

This paper investigates the link between foreign aid and exports between the two shores of the Mediterranean. The main hypothesis is that the Euro-Mediterranean Process should promote not only trade but also stronger links between the European Union (EU) and the Middle East and North Africa (MENA). Hence, we expect development aid to have a positive impact on exports, which could also intensify the aid-trade relationship. In particular, we expect to find higher trade volumes in both directions after the process started in 1995 and intensified in the late 1990s and early 2000s, when several bilateral free trade agreements were signed. A gravity model augmented with bilateral and multilateral aid and trade regime variables is estimated for exports and imports from recipient countries to donor countries for the period 1988 to 2007 using advanced panel data techniques. Our method addresses the endogeneity bias of the trade regime/economic integration agreement (EIA) variable, assuming that decisions to form or enlarge EIAs are slow-moving relative to trade flows.

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Bibliographic Info

Paper provided by Ibero-America Institute for Economic Research in its series Ibero America Institute for Econ. Research (IAI) Discussion Papers with number 218.

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Length: 38 pages
Date of creation: 08 May 2012
Date of revision:
Handle: RePEc:got:iaidps:218

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Keywords: International Trade; Foreign Aid; Euro-mediterranean Process;

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  1. Hristos Doucouliagos & Martin Paldam, 2006. "Aid Effectiveness on Accumulation: A Meta Study," Kyklos, Wiley Blackwell, Wiley Blackwell, vol. 59(2), pages 227-254, 05.
  2. Raghuram G. Rajan & Arvind Subramanian, 2005. "What Undermines Aid's Impact on Growth?," NBER Working Papers 11657, National Bureau of Economic Research, Inc.
  3. Raghuram G. Rajan & Arvind Subramanian, 2009. "Aid, Dutch Disease, and Manufacturing Growth," Working Papers, Center for Global Development 196, Center for Global Development.
  4. Jan Pettersson & Lars Johansson, 2013. "Aid, Aid for Trade, and bilateral trade: An empirical study," The Journal of International Trade & Economic Development, Taylor & Francis Journals, Taylor & Francis Journals, vol. 22(6), pages 866-894, September.
  5. Joong Shik Kang & Alessandro Prati & Alessandro Rebucci, 2010. "Aid, Exports, and Growth: A Time-Series Perspective on the Dutch Disease Hypothesis," IDB Publications 6866, Inter-American Development Bank.
  6. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
  7. Cecília Hornok, 2010. "Trade-Enhancing EU Enlargement and the Resurgence of East-East Trade," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 79-94.
  8. Hristos Doucouliagos & Martin Paldam, 2005. "Aid Effectiveness on Growth. A Meta Study," Economics Working Papers, School of Economics and Management, University of Aarhus 2005-13, School of Economics and Management, University of Aarhus.
  9. Persson, Maria & Wilhelmsson, Fredrik, 2006. "Assessing the Effects of EU Trade Preferences for Developing Countries," Working Papers, Lund University, Department of Economics 2006:4, Lund University, Department of Economics, revised 26 Jun 2006.
  10. Felicitas Nowak-Lehmann & Axel Dreher & Dierk Herzer & Stephan Klasen & Inmaculada Martínez-Zarzoso, 2012. "Does foreign aid really raise per capita income? A time series perspective," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 45(1), pages 288-313, February.
  11. José Vicente Blanes Cristóbal & Juliette Milgram Baleix, 2010. "Impacto de la liberalización comercial de Marruecos sobre las exportaciones por regiones," Revista de Economia Aplicada, Universidad de Zaragoza, Departamento de Estructura Economica y Economia Publica, Universidad de Zaragoza, Departamento de Estructura Economica y Economia Publica, vol. 18(1), pages 63-90, Spring.
  12. Kemp, Murray C. & Wong, Kar-yiu, 1993. "Paradoxes associated with the administration of foreign aid," Journal of Development Economics, Elsevier, Elsevier, vol. 42(1), pages 197-204, October.
  13. Gert-Jan M. Linders & Henri L.F. de Groot, 2006. "Estimation of the Gravity Equation in the Presence of Zero Flows," Tinbergen Institute Discussion Papers 06-072/3, Tinbergen Institute.
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