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Aid and Trade - A Donor's Perspective

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  • Felicitas Nowak-Lehmann D.
  • Inmaculada Martínez-Zarzoso
  • Stephan Klasen
  • Dierk Herzer

Abstract

One reason donors provide foreign aid is to support their exports to aid-recipient countries. Time series data for Germany suggests an average return of between US$1.04-$1.50 for each US dollar of aid spent by Germany. Although this is well below previous estimates, the value is robust to different specifications and econometric approaches. Interestingly, we find strong evidence of crowding out between bilateral donors in the sense that bilateral aid from other EU members significantly reduces exports from Germany to the recipients. The evidence suggests that, in the long run, aid causes exports and not vice versa. We discuss the implications these findings might have for aid volumes and allocation.

Suggested Citation

  • Felicitas Nowak-Lehmann D. & Inmaculada Martínez-Zarzoso & Stephan Klasen & Dierk Herzer, 2009. "Aid and Trade - A Donor's Perspective," Journal of Development Studies, Taylor & Francis Journals, vol. 45(7), pages 1184-1202, August.
  • Handle: RePEc:taf:jdevst:v:45:y:2009:i:7:p:1184-1202
    DOI: 10.1080/00220380902952407
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    Cited by:

    1. Barthel, Fabian & Neumayer, Eric & Nunnenkamp, Peter & Selaya, Pablo, 2014. "Competition for Export Markets and the Allocation of Foreign Aid: The Role of Spatial Dependence among Donor Countries," World Development, Elsevier, vol. 64(C), pages 350-365.
    2. repec:ksp:journ1:v:5:y:2018:i:1:p:57-80 is not listed on IDEAS
    3. Inmaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann D. & Stephan Klasen & Mario Larch, 2009. "Does German Development Aid Promote German Exports?," German Economic Review, Verein für Socialpolitik, vol. 10, pages 317-338, August.
    4. repec:dug:journl:y:2017:i:2:p:169-178 is not listed on IDEAS
    5. Martínez-Zarzoso Inmaculada & Nowak-Lehmann Felicitas & Klasen Stephan & Johannsen Florian, 2016. "Does German Development Aid boost German Exports and German Employment? A Sectoral Level Analysis," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 236(1), pages 71-94, February.
    6. Inmaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann D. & Stephan Klasen, 2010. "The Economic Benefits of Giving Aid in Terms of Donors` Exports," Ibero America Institute for Econ. Research (IAI) Discussion Papers 202, Ibero-America Institute for Economic Research.
    7. Philipp Hühne & Birgit Meyer & Peter Nunnenkamp, 2014. "Who Benefits from Aid for Trade? Comparing the Effects on Recipient versus Donor Exports," Journal of Development Studies, Taylor & Francis Journals, vol. 50(9), pages 1275-1288, September.
    8. Liu, Ailan & Tang, Bo, 2018. "US and China aid to Africa: Impact on the donor-recipient trade relations," China Economic Review, Elsevier, vol. 48(C), pages 46-65.
    9. repec:pal:eurjdr:v:29:y:2017:i:4:d:10.1057_s41287-016-0060-5 is not listed on IDEAS
    10. José María, Larrú, 2012. "La relación entre la ayuda al desarrollo y la desigualdad. Evidencia y justificación teórica
      [Aid and inequality relationship. Evidence and theoretical justification]
      ," MPRA Paper 38857, University Library of Munich, Germany.
    11. Dierk Herzer & Oliver Morrissey, "undated". "The Long-Run Effect of Aid on Domestic Output," Discussion Papers 09/01, University of Nottingham, CREDIT.
    12. Dierk Herzer, 2017. "The Long-run Relationship Between Trade and Population Health: Evidence from Five Decades," The World Economy, Wiley Blackwell, vol. 40(2), pages 462-487, February.
    13. Pincin, Jared, 2013. "Political power and aid tying practices in the development assistance committee countries," MPRA Paper 49806, University Library of Munich, Germany.
    14. Nowak-Lehmann D., Felicitas & Martínez-Zarzoso, Inmaculada & Cardozo, Adriana & Klasen, Stephan, 2010. "Foreign aid and recipient countries' exports: How important are improved bilateral trade relations?," Proceedings of the German Development Economics Conference, Hannover 2010 44, Verein für Socialpolitik, Research Committee Development Economics.

    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • C - Mathematical and Quantitative Methods

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