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Aid for Trade and Global Growth

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  • NAITO Takumi

Abstract

Aid for trade increases a recipient's public services, which lower its import and export transport costs. Formulating a two-country endogenous growth model, we obtain two main results. First, a permanent increase in the donor's aid/GDP ratio raises the steady-state growth rate as well as both countries' long-run fractions and cost shares of imported varieties if and only if it lowers the product of transport costs. Second, under a plausible condition, there exists a unique interior growth-maximizing aid/GDP ratio. These results are robust to alternative specifications for congestion and stock-flow nature of public goods.

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  • NAITO Takumi, 2015. "Aid for Trade and Global Growth," Discussion papers 15025, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:15025
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