Foreign Aid, Exchange Rate Regime, and Agricultural Trade

Abstract

This study investigates the relationship between foreign aid and agricultural exports in recipient countries. Using the constructed data from 47 countries in the period of 2001--2018, we first find that foreign aid inflows in the form of official development assistance (ODA) cause an appreciation of the real exchange rate in recipient countries, particularly in low-income countries with floating exchange rate regimes. Our results further uncover that foreign aid inflow unexpectedly leads to a decrease in agricultural exports in agrarian recipient countries through the channel of exchange rate appreciation.

Keywords: Foreign Aid, Official Development Assistance, Exchange Rate, Agricultural Trade, Exports

JEL Classification: B17, F14, F35, O24, P33, Q17