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Foreign aid and export diversification in developing countries

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  • Jonathan Munemo

Abstract

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.

Suggested Citation

  • Jonathan Munemo, 2011. "Foreign aid and export diversification in developing countries," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 20(3), pages 339-355.
  • Handle: RePEc:taf:jitecd:v:20:y:2011:i:3:p:339-355 DOI: 10.1080/09638199.2011.538970
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Sekkat, Khalid, 2016. "Exchange rate misalignment and export diversification in developing countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 1-14.
    2. Lectard, Pauline & Rougier, Eric, 2018. "Can Developing Countries Gain from Defying Comparative Advantage? Distance to Comparative Advantage, Export Diversification and Sophistication, and the Dynamics of Specialization," World Development, Elsevier, vol. 102(C), pages 90-110.
    3. Gnangnon, Sèna Kimm & Roberts, Michael, 2015. "Aid for trade, foreign direct investment and export upgrading in recipient countries," WTO Staff Working Papers ERSD-2015-10, World Trade Organization (WTO), Economic Research and Statistics Division.
    4. Hühne, Philipp & Meyer, Birgit & Nunnenkamp, Peter, 2014. "Aid for trade: Assessing the effects on recipient exports of manufactures and primary commodities to donors and non-donors," Kiel Working Papers 1953, Kiel Institute for the World Economy (IfW).
    5. Jouini, Nizar & Oulmane, Nassim & Peridy, Nicolas, 2014. "North African countries (NACs) production and export structure: Towards diversification and export sophistication strategy," MPRA Paper 62476, University Library of Munich, Germany.
    6. repec:spr:jecfin:v:41:y:2017:i:2:d:10.1007_s12197-016-9352-z is not listed on IDEAS
    7. Pierre-Guillaume Méon & Khalid Sekkat, 2013. "FDI and Exports Diversification in Arab Countries," Working Papers 816, Economic Research Forum, revised Dec 2013.
    8. Javed, Zanib & Munir, Kashif, 2016. "Impact of Export Composition on Economic Growth in South Asia," MPRA Paper 71519, University Library of Munich, Germany.
    9. 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.
    10. Manamba EPAPHRA, 2016. "Determinants of Export Performance in Tanzania," Journal of Economics Library, KSP Journals, vol. 3(3), pages 470-487, September.

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