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Do donors care about declining trade revenues from liberalization? an analysis of aid allocation

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  • Subhayu Bandyopadhyay
  • Javed Younas

Abstract

Many developing country governments rely heavily on trade tax revenue. Therefore, trade liberalization can be a potential source of significant fiscal instability, and may affect government spending on development activities. Donor nations may take this into account in making their aid allocation decisions for developing nations. Our findings suggest that bilateral donors provide substantially larger amounts of aid to compensate (or reward) liberalizing recipient nations who also face declining trade tax revenues. Interestingly, these effects are statistically insignificant in the context of multilateral aid. Multilateral donors are more focused on income per capita and may be using it as a de facto measure of average living standards in the recipient nations.

Suggested Citation

  • Subhayu Bandyopadhyay & Javed Younas, 2007. "Do donors care about declining trade revenues from liberalization? an analysis of aid allocation," Working Papers 2007-028, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2007-028
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    2. Julia Cage & Lucie Gadenne, 2014. "Tax Revenues, Development, and the Fiscal Cost of Trade Liberalization, 1792-2006," Working Papers hal-03460586, HAL.
    3. Bismillah & Shahnawaz Malik & Muhammad Ramzan Sheikh, 2022. "Trade Liberalization And Fiscal Stance In Selected Developing Countries: A Granger Causality Approach In Var Framework," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 134-159, June.
    4. Baunsgaard, Thomas & Keen, Michael, 2010. "Tax revenue and (or?) trade liberalization," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 563-577, October.
    5. Arzoo Mushtaq & Shahnawaz Malik & Muhammad Hanif Akhtar, 2022. "Nonlinear Taylor Rule And Inflation-Targeting In Pakistan: A Time Series Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 185-197, June.

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