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Global value chains: Do they impact the allocation of foreign aid?

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  • Basak Bayramoglu

    (UMR PSAE - Paris-Saclay Applied Economics - AgroParisTech - Université Paris-Saclay - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Jean-François Jacques

    (ERUDITE - Equipe de Recherche sur l’Utilisation des Données Individuelles en lien avec la Théorie Economique - UPEM - Université Paris-Est Marne-la-Vallée - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12)

  • Julie Lochard

    (ERUDITE - Equipe de Recherche sur l’Utilisation des Données Individuelles en lien avec la Théorie Economique - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12 - Université Gustave Eiffel)

Abstract

The rise of global value chains (GVCs) in recent decades has induced significant changes in the geography of world production, with consequences for bilateral relations. What are the consequences of GVC-related bilateral trade for the allocation of bilateral foreign aid? Using data on bilateral aid from 22 donors to 127 recipient countries over 2000-2018, our findings, robust to endogeneity, show that a larger participation of the recipient country in GVCs increases the amount of aid allocated to that country. To rationalize these findings, we develop a theoretical model that provides a simple explanation for the existence of transfers among countries: foreign aid allows a donor country producing a final good to buy less expensive intermediate inputs from an upstream country. Overall, this suggests that donors allocate aid strategically to import inputs at a lower cost.

Suggested Citation

  • Basak Bayramoglu & Jean-François Jacques & Julie Lochard, 2025. "Global value chains: Do they impact the allocation of foreign aid?," Post-Print hal-05417354, HAL.
    • Handle: RePEc:hal:journl:hal-05417354
    DOI: 10.1016/j.jce.2025.07.007
    Note: View the original document on HAL open archive server: https://hal.inrae.fr/hal-05417354v1
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