Aid Versus Trade Revisited: Donor and Recipient Policies in the Presence of Learning-by-Doing

24 Pages Posted: 18 Aug 2004

See all articles by Christopher Scott Adam

Christopher Scott Adam

University of Oxford

Stephen A. O'Connell

Swarthmore College - Economics Department; University of Oxford - Centre for Study of African Economics

Abstract

We examine the (non) equivalence of aid and trade preferences as alternative forms of donor assistance in the presence of learning-by-doing externalities in recipient-country export production. Using a model based on van Wijnbergen (1985), we show that switching donor support on the margin from aid to trade preferences can increase recipient-country welfare. Simulations in which the productivity externality also interacts with private capital accumulation and fiscal distortions illustrate the potential growth and welfare gains from a revenue neutral re-orientation of donor assistance. We conclude by considering why these potential dynamic gains remain unexploited by both donors and recipients.

Suggested Citation

Adam, Christopher Scott and O'Connell, Stephen A., Aid Versus Trade Revisited: Donor and Recipient Policies in the Presence of Learning-by-Doing. Economic Journal, Vol. 114, pp. 150-173, January 2004. Available at SSRN: https://ssrn.com/abstract=547495

Christopher Scott Adam (Contact Author)

University of Oxford ( email )

Oxford
United Kingdom

Stephen A. O'Connell

Swarthmore College - Economics Department ( email )

Swarthmore, PA 19081
United States
610-328-8107 (Phone)
610-328-7352 (Fax)

HOME PAGE: http://www.swarthmore.edu/SocSci/soconne1/

University of Oxford - Centre for Study of African Economics

Wellington Square
Oxford OX1 3JP
United Kingdom

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