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Aid for trade, infrastructure, and growth

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  • Takumi Naito

Abstract

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

Suggested Citation

  • Takumi Naito, 2013. "Aid for trade, infrastructure, and growth," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(6), pages 886-909, December.
  • Handle: RePEc:kap:itaxpf:v:20:y:2013:i:6:p:886-909
    DOI: 10.1007/s10797-012-9249-5
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    More about this item

    Keywords

    Aid for trade; Public infrastructure; Endogenous growth; Stolper–Samuelson theorem; Transfer paradox; F35; F43; H54;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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