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Foreign aid and free trade and their effect on income: a panel analysis


  • Ali, Abdiweli M.
  • Isse, Hodan Said.

    () (Niagara University, USA
    State University of New York at Buffalo, USA)


This paper uses a panel approach and annual observations of over 150 countries for the period 1975 – 2000 to examine the impact of foreign aid and trade on income. The paper addresses the simultaneity of international trade, foreign aid and economic performance by using a full information system or three-stage least squares approach. The findings of this paper strongly suggest that foreign aid and trade are strong determinants of GDP per worker, albeit in opposite directions. The regression results are robust to the inclusion of a multitude of exogenous variables that are considered to be determinants of GDP per worker. Foreign aid is a commonly owned resource, powerful individuals and state heads establish property right in the system and, as a result, rent extractors expend resources resisting deregulation that attempt to remove that privilege. On the other hand, the empirical evidence reaffirms that international trade appears complementary to economic performance.

Suggested Citation

  • Ali, Abdiweli M. & Isse, Hodan Said., 2007. "Foreign aid and free trade and their effect on income: a panel analysis," Journal of Developing Areas, Tennessee State University, College of Business, vol. 41(1), pages 127-142, September.
  • Handle: RePEc:jda:journl:vol.41:year:2007:issue1:pp:127-142

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    Cited by:

    1. repec:pid:journl:v:57:y:2018:i:2:p:145-174 is not listed on IDEAS
    2. Bukhari, Mahnoor & Munir, Kashif, 2016. "Impact of Globalization on Income Inequality in Selected Asian Countries," MPRA Paper 74248, University Library of Munich, Germany.

    More about this item


    Foreign Aid; Free Trade; Economic Growth;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General


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