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Does Official Development Assistance Affect Donor's Export? Case of Korea

Listed author(s):
  • Noh, Bobae

    (Sogang University)

  • Heshmati, Almas

    ()

    (Jönköping University, Sogang University)

This paper aims to estimate the impact of bilateral Official Development Assistance (ODA) provided by Korea on its bilateral export to recipient countries. The empirical analysis is based on data from 1996 to 2014 with 121 recipient countries. Although the two models of determinants of ODA and its export effectiveness are highly interrelated, this kind of simultaneous model specification with two-ways causal relationship has not been conducted in the past. Employing a three-stage least squares estimation method leads to accounting for two-ways causal relationships between ODA and export while the endogeneity and sample selection bias are accounted for. Through using the gravity model in analysis of Korea's aggregated export data, the positive effect of bilateral ODA is confirmed when fixed unobserved effects are controlled. The model is further generalized by disaggregation of ODA into its underlying types. The results show that, humanitarian aid and loan-type aid turn out to be effective types of ODA to influence export positively. In terms of Korea's ODA allocation, the finding suggests that there is a two-stage decision making process in aid provision. In the first stage, a humanitarian purpose of aid dominates responding to lower income and disaster experienced countries' needs, even when lower bilateral trade prevails. The second stage is to make a decision regarding the size of ODA to selected recipient countries, and this presents a mixed purposes of giving ODA aiming at higher importer countries.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 10553.

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Length: 30 pages
Date of creation: Feb 2017
Handle: RePEc:iza:izadps:dp10553
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  1. Berthelemy, Jean-Claude & Tichit, Ariane, 2004. "Bilateral donors' aid allocation decisions--a three-dimensional panel analysis," International Review of Economics & Finance, Elsevier, vol. 13(3), pages 253-274.
  2. Alberto Alesina & David Dollar, 1998. "Who Gives Foreign Aid to Whom and Why?," NBER Working Papers 6612, National Bureau of Economic Research, Inc.
  3. Slobodan Djajić & Sajal Lahiri & Pascalis Raimondos-Møller, 2004. "Logic of Aid in an Intertemporal Setting," Review of International Economics, Wiley Blackwell, vol. 12(1), pages 151-161, 02.
  4. Portugal-Perez, Alberto & Wilson, John S., 2009. "Why trade facilitation matters to Africa," World Trade Review, Cambridge University Press, vol. 8(03), pages 379-416, July.
  5. Mckinlay, R. D. & Little, R., 1978. "A Foreign-Policy Model of the Distribution of British Bilateral Aid, 1960–70," British Journal of Political Science, Cambridge University Press, vol. 8(03), pages 313-331, July.
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