Do Donors Care about Declining Trade Revenues from Liberalization? An Analysis of Aid Allocation

FRB of St. Louis Working Paper No. 2007-028A

31 Pages Posted: 1 Aug 2007

See all articles by Javed Younas

Javed Younas

affiliation not provided to SSRN

Subhayu Bandyopadhyay

Federal Reserve Bank of St. Louis - Research Division; IZA Institute of Labor Economics; West Virginia University

Date Written: July 2007

Abstract

Many developing country governments rely heavily on trade tax revenue. Therefore, trade liberalization can be a potential source of significant fiscal instability, and may affect government spending on development activities. Donor nations may take this into account in making their aid allocation decisions for developing nations. Our findings suggest that bilateral donors provide substantially larger amounts of aid to compensate (or reward) liberalizing recipient nations who also face declining trade tax revenues. Interestingly, these effects are statistically insignificant in the context of multilateral aid. Multilateral donors are more focused on income per capita and may be using it as a de facto measure of average living standards in the recipient nations.

Keywords: Bilateral and multilateral aid, Trade tax revenue, Trade liberalization

JEL Classification: F35, H0,

Suggested Citation

Younas, Javed and Bandyopadhyay, Subhayu, Do Donors Care about Declining Trade Revenues from Liberalization? An Analysis of Aid Allocation (July 2007). Available at SSRN: https://ssrn.com/abstract=1004297 or http://dx.doi.org/10.2139/ssrn.1004297

Javed Younas (Contact Author)

affiliation not provided to SSRN ( email )

No Address Available

Subhayu Bandyopadhyay

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
PO Box 442
St. Louis, MO 63011
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

West Virginia University ( email )

Morgantown, WV 26506-6025
United States
304-293-7879 (Phone)
304-293-7061 (Fax)

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