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Aid and Trade - A Donor’s Perspective


  • Felicitas Nowak-Lehmann D.

    (Georg-August University Göttingen, Germany)

  • Inmaculada Martínez Zarzoso

    (Georg-August University Göttingen, Germany)

  • Stephan Klasen

    (Georg-August University Göttingen, Germany)

  • Dierk Herzer

    (Johann-Wolfgang Goethe University Frankfurt, Germany)


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 to US$ 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," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 7, Courant Research Centre PEG.
  • Handle: RePEc:got:gotcrc:007

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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. Dierk Herzer & Oliver Morrissey, "undated". "The Long-Run Effect of Aid on Domestic Output," Discussion Papers 09/01, University of Nottingham, CREDIT.
    7. Herzer, Dierk, 2014. "The long-run relationship between trade and population health: evidence from five decades," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100441, Verein für Socialpolitik / German Economic Association.
    8. Pincin, Jared, 2013. "Political power and aid tying practices in the development assistance committee countries," MPRA Paper 49806, University Library of Munich, Germany.
    9. 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.
    10. 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.
    11. repec:pal:eurjdr:v:29:y:2017:i:4:d:10.1057_s41287-016-0060-5 is not listed on IDEAS

    More about this item


    trade; foreign aid; donors; time series based panel estimation techniques;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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