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Foreign aid and recipient countries' exports: How important are improved bilateral trade relations?

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Listed:
  • Nowak-Lehmann D., Felicitas
  • Martínez-Zarzoso, Inmaculada
  • Cardozo, Adriana
  • Klasen, Stephan

Abstract

This paper uses the gravity model of trade to investigate the link between foreign aid and exports in recipient countries and tests for the transmission channels between aid and exports/economic development in developing countries. Most of the theoretical work emphasizes the negative impact of aid on recipient countries' exports primarily due to exchange rate appreciation, disregarding the positive impact of aid linked to the income effect. The empirical findings, in contrast, indicate that the net impact of aid on recipient countries' exports is positive and that the average return for recipients' exports is about 1.50 US$ for every aid dollar spent. The paper also estimates the effect of different types of aid (bilateral aid [from one donor to one specific recipient, and bilateral aid from all the other donors to one specific recipient], as well as multilateral aid flowing to a specific recipient) and finds that at least two types of aid have a positive and significant effect on recipients' exports, thus ruling out a major crowding out effect. It is further found that aid is hardly export-enhancing in Africa.

Suggested Citation

  • Nowak-Lehmann D., Felicitas & Martínez-Zarzoso, Inmaculada & Cardozo, Adriana & Klasen, Stephan, 2010. "Foreign aid and recipient countries' exports: How important are improved bilateral trade relations?," Proceedings of the German Development Economics Conference, Hannover 2010 44, Verein für Socialpolitik, Research Committee Development Economics.
  • Handle: RePEc:zbw:gdec10:44
    as

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    File URL: https://www.econstor.eu/bitstream/10419/39992/1/327_nowak-lehmann_d.pdf
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    References listed on IDEAS

    as
    1. Berthelemy, Jean-Claude & Tichit, Ariane, 2004. "Bilateral donors' aid allocation decisions--a three-dimensional panel analysis," International Review of Economics & Finance, Elsevier, pages 253-274.
    2. Inmaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann D. & Stephan Klasen & Mario Larch, 2009. "Does German Development Aid Promote German Exports?," German Economic Review, Verein für Socialpolitik, vol. 10, pages 317-338, August.
    3. Felicitas Nowak-Lehmann D. & Inmaculada Martínez-Zarzoso & Stephan Klasen & Dierk Herzer, 2009. "Aid and Trade - A Donor's Perspective," Journal of Development Studies, Taylor & Francis Journals, pages 1184-1202.
    4. Berthelemy, Jean-Claude & Tichit, Ariane, 2004. "Bilateral donors' aid allocation decisions--a three-dimensional panel analysis," International Review of Economics & Finance, Elsevier, pages 253-274.
    5. Felicitas Nowak-Lehmann D. & Inmaculada Martínez-Zarzoso & Stephan Klasen & Dierk Herzer, 2009. "Aid and Trade - A Donor's Perspective," Journal of Development Studies, Taylor & Francis Journals, pages 1184-1202.
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    Cited by:

    1. repec:wsi:jicepx:v:02:y:2011:i:01:n:s1793993311000257 is not listed on IDEAS
    2. José María, Larrú, 2012. "La relación entre la ayuda al desarrollo y la desigualdad. Evidencia y justificación teórica
      [Aid and inequality relationship. Evidence and theoretical justification]
      ," MPRA Paper 38857, University Library of Munich, Germany.

    More about this item

    Keywords

    International Tade; Foreign Aid; Recipient Exports; Real Exchange Rate;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F35 - International Economics - - International Finance - - - Foreign Aid

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