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Does German Development Aid Promote German Exports?

This paper uses a static and dynamic gravity model of trade to investigate the link between German development aid and exports from Germany to the recipient countries. The findings indicate that in the long run,German aid is associated with an increase in exports of goods that is larger than the aid flow, with a point estimate of 140 percent of the aid given. In addition, the evolution of the estimated coefficients over time shows an effect that is consistently positive but which oscillates over time. Interestingly, in the period from 2001 to 2005, a steady increase in the effect of aid on trade can be observed following a decrease in this phenomenon in the second half of the nineties. The paper also distinguishes among recipient countries and finds that the return on aid measured by German exports is higher for aid to countries considered “strategic aid recipients” by the German government.

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File URL: http://www2.vwl.wiso.uni-goettingen.de/ibero/working_paper_neu/DB170.pdf
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Paper provided by Ibero-America Institute for Economic Research in its series Ibero America Institute for Econ. Research (IAI) Discussion Papers with number 170.

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Length: 37 pages
Date of creation: 10 Apr 2008
Date of revision:
Handle: RePEc:got:iaidps:170
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  1. 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.
  2. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
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  8. Simone Juhasz Silva & Douglas Nelson, 2012. "Does Aid Cause Trade? Evidence from an Asymmetric Gravity Model," The World Economy, Wiley Blackwell, vol. 35(5), pages 545-577, 05.
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  10. Berthelemy, Jean-Claude & Tichit, Ariane, 2002. "Bilateral Donors' Aid Allocation Decisions: A Three-dimensional Panel Analysis," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  11. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2007. "Enhanced routines for instrumental variables/GMM estimation and testing," Boston College Working Papers in Economics 667, Boston College Department of Economics, revised 05 Sep 2007.
  12. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
  13. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
  14. Brecher, Richard A. & Bhagwati, Jagdish N., 1982. "Immiserizing transfers from abroad," Journal of International Economics, Elsevier, vol. 13(3-4), pages 353-364, November.
  15. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
  16. J. N. Bhagwati & R. A. Brecher, 1979. "Foreign Ownership and the Theory of Trade and Welfare," Working papers 249, Massachusetts Institute of Technology (MIT), Department of Economics.
  17. A. Bhargava & L. Franzini & W. Narendranathan, 2006. "Serial Correlation and the Fixed Effects Model," World Scientific Book Chapters, in: Econometrics, Statistics And Computational Approaches In Food And Health Sciences, chapter 4, pages 61-77 World Scientific Publishing Co. Pte. Ltd..
  18. Mak Arvin & Bruce Cater & Saud Choudhry, 2000. "A causality analysis of untied foreign assistance and export performance: the case of Germany," Applied Economics Letters, Taylor & Francis Journals, vol. 7(5), pages 315-319.
  19. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-81, August.
  20. Bhagwati, Jagdish N & Brecher, Richard A & Hatta, Tatsuo, 1983. "The Generalized Theory of Transfers and Welfare: Bilateral Transfers in a Multilateral World," American Economic Review, American Economic Association, vol. 73(4), pages 606-18, September.
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  22. Oliver Morrissey, 2006. "Aid or Trade, or Aid and Trade?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 39(1), pages 78-88, 03.
  23. Jagdish Bhagwati & Richard Brecher & Tatsuo Hatta, 1984. "The paradoxes of immiserizing growth and donor-enriching “recipient-immiserizing” transfers: A tale of two literatures," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 120(2), pages 228-243, June.
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