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Aid for trade, infrastructure, and growth

  • Takumi Naito


Aid for trade is a new foreign aid initiative to assist recipient countries to build trade-related infrastructure. We formulate a small-country, two-good (i.e., investment and consumption goods), two-factor (i.e., capital and labor) endogenous growth model with learning by doing and intersectoral knowledge spillovers, where the import transport cost depends inversely on public infrastructure. Focusing on the case where the country is incompletely specialized and imports the investment good, we show that a permanent increase in the recipient’s aid/GDP ratio raises the steady-state growth rate if and only if the investment good is more labor-intensive. Copyright Springer Science+Business Media, LLC 2013

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Article provided by Springer & International Institute of Public Finance in its journal International Tax and Public Finance.

Volume (Year): 20 (2013)
Issue (Month): 6 (December)
Pages: 886-909

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Handle: RePEc:kap:itaxpf:v:20:y:2013:i:6:p:886-909
DOI: 10.1007/s10797-012-9249-5
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