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Tying of Aid to Trade Policy Reform and Welfare


  • Sajal Lahiri
  • Pascalis Raimondos


This paper considers the welfare effect of foreign aid when the recipient country has protectionist policy in the form of tariffs in place and aid is tied to the reduction of tariffs. It is shown that in a two country framework such aid cannot give rise to the well known transfer paradox. In the presence of a third country, we derive a necessary condition for donor enrichment and a necessary and sufficient condition for recipient immiserisation. It is shown that, although our type of tied aid can increase global welfare, strict Pareto improvement is impossible.

Suggested Citation

  • Sajal Lahiri & Pascalis Raimondos, "undated". "Tying of Aid to Trade Policy Reform and Welfare," EPRU Working Paper Series 94-08, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:epruwp:94-08

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