Does Aid Promote Donor Exports? Commercial Interest Versus Instrumental Philanthropy

29 Pages Posted: 11 Oct 2014

See all articles by Inmaculada Martínez-Zarzoso

Inmaculada Martínez-Zarzoso

University of Goettingen (Gottingen) - School of Law, Economics, Social Sciences; Jaume I University - Department of Economics

Felicitas Nowak-Lehmann

University of Goettingen (Gottingen) - Department of Economics

Maria Robles

Jaume I University - Department of Economics

Stephan Klasen

University of Goettingen (Gottingen) - Faculty of Economics and Business Administration; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Date Written: November 2014

Abstract

This paper investigates by means of advanced panel data techniques whether bilateral aid has been successful in promoting bilateral exports to recipient countries during the period 1988–2007 and to what extent changes in aid policies have influenced this relationship. The main novelty of this research is the distinction between tied and untied aid in a multi‐donor gravity model of trade and the comparison between trade and aid policies in this setting. We find an average positive effect of bilateral aid on exports, which varies over time and across donors and which appears to depend on the extent to which donors tied aid to exports. The effect does appear to have decreased substantially over the period studied and it is even not statistically significant in the 2000s, which could suggest that the recommendations given by the OECD Development Assistance Committee (DAC) concerning the untying of aid and aid allocation have been followed by the donors and led to declining impacts on their exports. Interestingly, these decreasing aid‐elasticities are accompanied by increasing coefficients of the regional trade agreement variable, which is positive and statistically significant after 1994. Finally, we find that the strength of the relationship between exports and bilateral aid is correlated with the extent to which aid is tied and partially related to the sectoral allocation of aid.

Suggested Citation

Martínez-Zarzoso, Inmaculada and Nowak-Lehmann, Felicitas and Robles, Maria and Klasen, Stephan, Does Aid Promote Donor Exports? Commercial Interest Versus Instrumental Philanthropy (November 2014). Kyklos, Vol. 67, Issue 4, pp. 559-587, 2014. Available at SSRN: https://ssrn.com/abstract=2508495 or http://dx.doi.org/10.1111/kykl.12068

Inmaculada Martínez-Zarzoso (Contact Author)

University of Goettingen (Gottingen) - School of Law, Economics, Social Sciences ( email )

Germany

Jaume I University - Department of Economics ( email )

Campus del Riu Sec.
E-12071 Castellon
Spain

Felicitas Nowak-Lehmann

University of Goettingen (Gottingen) - Department of Economics ( email )

Platz der Goettinger Sieben 3
Goettingen, 37073
Germany

Maria Robles

Jaume I University - Department of Economics ( email )

Campus del Riu Sec.
E-12071 Castellon
Spain

Stephan Klasen

University of Goettingen (Gottingen) - Faculty of Economics and Business Administration ( email )

Platz der Goettinger Sieben 3
Goettingen, 37073
Germany
+49-551-397303 (Phone)
+49-551-397302 (Fax)

HOME PAGE: www.vwl.wiso.uni-goettingen.de/klasen.html

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

IZA Institute of Labor Economics

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

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