Foreign aid and export diversification in developing countries
This paper analyzes the effect of foreign aid on export diversification for a sample of developing countries while controlling for the effects of other factors that determine export diversification. We find that foreign aid not exceeding 20% of a country's GDP significantly promotes export diversification, while foreign aid in excess of 20% of GDP significantly impedes export diversification. The latter result corroborates evidence from related literature, which has shown that foreign aid can have an anti-export bias due to a Dutch disease effect. However, our results show that aid as a percent of GDP is below 20% in most low-income countries. This implies that in many low-income countries, varying amounts of additional aid can be used to enhance export diversification without causing a Dutch disease effect. As in the previous literature, we find that the level of development, infrastructure, transactions costs, and natural resources significantly affect export diversification. Our results are robust to the use of two different export diversification measures and different sub-samples.
Volume (Year): 20 (2011)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RJTE20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RJTE20|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Subhayu Bandyopadhyay & Howard J. Wall, 2007.
"The determinants of aid in the post-cold war era,"
Federal Reserve Bank of St. Louis, issue Nov, pages 533-548.
- Subhayu Bandyopadhyay & Howard J. Wall, 2006. "The determinants of aid in the post-cold war era," Working Papers 2006-021, Federal Reserve Bank of St. Louis.
- Subhayu Bandyopadhyay, 2006. "The Determinants of Aid in the Post-Cold War Era," Working Papers 06-14 Classification- JEL, Department of Economics, West Virginia University.
- White, Howard & Wignaraja, Ganeshan, 1992. "Exchange rates, trade liberalization and aid: The Sri Lankan experience," World Development, Elsevier, vol. 20(10), pages 1471-1480, October.
- Jonathan Munemo & Subhayu Bandyopadhyay & Arabinda Basisth, 2007.
"Foreign aid and export performance: a panel data analysis of developing countries,"
2007-023, Federal Reserve Bank of St. Louis.
- Jonathan Munemo & Subhayu Bandyopadhyay & Arabinda Basistha, 2006. "Foreign Aid and Export Performance: A Panel Data Analysis of Developing Countries," Working Papers 06-10 Classification-, Department of Economics, West Virginia University.
- Paul Collier & Jan Willem Gunning, 1998.
"Explaining African economic performance,"
Economics Series Working Papers
WPS/1997-02.2, University of Oxford, Department of Economics.
- Wacziarg, Romain & Imbs, Jean, 2000.
"Stages of Diversification,"
1653, Stanford University, Graduate School of Business.
- Raghuram G. Rajan & Arvind Subramanian, 2005.
"Aid and Growth: What Does the Cross-Country Evidence Really Show?,"
NBER Working Papers
11513, National Bureau of Economic Research, Inc.
- Raghuram G. Rajan & Arvind Subramanian, 2008. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 643-665, November.
- Raghuram G. Rajan, 2005. "Aid and Growth: What Does The Cross-Country Evidence Really Show?," Working Papers id:54, eSocialSciences.
- Raghuram Rajan & Arvind Subramanian, 2005. "Aid and Growth; What Does the Cross-Country Evidence Really Show?," IMF Working Papers 05/127, International Monetary Fund.
- Dollar, David & Alesina, Alberto, 2000.
"Who Gives Foreign Aid to Whom and Why?,"
4553020, Harvard University Department of Economics.
- Habiyaremye, Alexis & Ziesemer, Thomas, 2006. "Absorptive Capacity and Export Diversification in Sub-Saharan African Countries," MERIT Working Papers 030, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
- Dani Rodrik, 1995.
"Why is there Multilateral Lending?,"
NBER Working Papers
5160, National Bureau of Economic Research, Inc.
- David Dollar & Craig Burnside, 2000.
"Aid, Policies, and Growth,"
American Economic Review,
American Economic Association, vol. 90(4), pages 847-868, September.
- Younger, Stephen D., 1992. "Aid and the Dutch disease: Macroeconomic management when everybody loves you," World Development, Elsevier, vol. 20(11), pages 1587-1597, November.
- Raghuram G. Rajan & Arvind Subramanian, 2005. "What Undermines Aid's Impact on Growth?," NBER Working Papers 11657, National Bureau of Economic Research, Inc.
- Wood, Adrian & Mayer, Jorg, 2001. "Africa's Export Structure in a Comparative Perspective," Cambridge Journal of Economics, Oxford University Press, vol. 25(3), pages 369-94, May.
- Federico Bonaglia & Kiichiro Fukasaku, 2003.
"Export Diversification in Low-Income Countries: An International Challenge After Doha,"
OECD Development Centre Working Papers
209, OECD Publishing.
- Federico Bonaglia & Kichiro Fukasaku, 2003. "Export Diversification In Low-Income Countries: An International Challenge After Doha," Development and Comp Systems 0307001, EconWPA.
- Arvind Subramanian & Raghuram Rajan, 2005.
"What Undermines Aidâ€™s Impact on Growth?,"
IMF Working Papers
05/126, International Monetary Fund.
- Jens Andersson & Federico Bonaglia & Kiichiro Fukasaku & Caroline Lesser, 2005.
"Trade and Structural Adjustment Policies in Selected Developing Countries,"
OECD Development Centre Working Papers
245, OECD Publishing.
- Jens Andersson & Federico Bonaglia & Kiichiro Fukasaku & Caroline Lesser, 2005. "Trade And Structural Adjustment Policies In Selected Developing Countries," Development and Comp Systems 0507003, EconWPA.
- Osakwe, Patrick N., 2007. "Foreign Aid, Resources and Export Diversification in Africa: A New Test of Existing Theories," MPRA Paper 2228, University Library of Munich, Germany.
- van Wijnbergen, Sweder, 1985. "Aid, Export Promotion and the Real Exchange Rate: An African Dilemma?," CEPR Discussion Papers 88, C.E.P.R. Discussion Papers.
- Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
When requesting a correction, please mention this item's handle: RePEc:taf:jitecd:v:20:y:2011:i:3:p:339-355. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.