Aid versus Trade Revisited
This paper examines the (non) equivalance between aid flows and trade preferences as alternative forms of donor assistance in the presence of learning-by-doing externalities in recipient country export production. Using a two-period model based on vanWijnbergen (1985), in which the productivity externality consistitues the only (inter-temporal) distortion, we show that switching donor support on the margin from aid to trade preferences can increase recipient country welfare. To evaluate the size of this potential welfare gain to small African economies we simulate donor policy reforms using a dynamic CGE model where the productivity externality may also interact with private capital accumulation. We show that for reasonable values of key behavioural parameters, the potential growth and welfare gains from a (donor) revenue neutral re-orientation of assistance to developing countries could be substantial. The paper concludes by considering why these potential dynamic gains appear to be unexpoited by both donors and recipients.
|Date of creation:||01 Jan 2000|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.economics.ox.ac.uk/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Davies, Rob & Rattso, Jorn & Torvik, Ragnar, 1998. "Short-Run Consequences of Trade Liberalization: A Computable General Equilibrium Model of Zimbabwe," Journal of Policy Modeling, Elsevier, vol. 20(3), pages 305-333, June.
- Westphal, Larry E, 1990. "Industrial Policy in an Export-Propelled Economy: Lessons from South Korea's Experience," Journal of Economic Perspectives, American Economic Association, vol. 4(3), pages 41-59, Summer.
When requesting a correction, please mention this item's handle: RePEc:oxf:wpaper:wps/2000-19. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Caroline Wise)
If references are entirely missing, you can add them using this form.