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A theory of aid as trade

Author

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  • Bernard Poirine

    (GDI - Gouvernance et développement insulaire - UPF - Université de la Polynésie Française)

Abstract

This article presents a theory of aid as trade. I assume that aid is a payment for an invisible export of strategic services to a large donor country seeking diplomatic goodwill and exclusive strategic use of a small country's territory, oceanic space and airspace. In a formal two countries-two goods model, the strategic service is produced with a higher productivity in the small country/island because of its geographic location (close to a potential enemy of the large country, for example). The other good is a composite manufactured good produced with higher productivity in the large country. There are gains from international trade that can be obtained by both countries, and divided between them. The citizen of both countries are better off: a lower cost for defense of the large industrial country, and a geostrategic rent for the citizen of the small country, enabling them to finance a deficit of the official balance of goods and services.

Suggested Citation

  • Bernard Poirine, 1999. "A theory of aid as trade," Post-Print hal-00974445, HAL.
    • Handle: RePEc:hal:journl:hal-00974445
    Note: View the original document on HAL open archive server: https://hal.science/hal-00974445
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    File URL: https://hal.science/hal-00974445/document
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    Citations

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    Cited by:

    1. Haoatai, Heinarii & Monypenny, Richard, 2011. "Export demand for Tahitian black pearls," Australasian Agribusiness Review, University of Melbourne, Department of Agriculture and Food Systems, vol. 19, pages 1-16.
    2. Bertram, Geoffrey, 2004. "On the Convergence of Small Island Economies with Their Metropolitan Patrons," World Development, Elsevier, vol. 32(2), pages 343-364, February.
    3. Simone Juhasz Silva & Douglas Nelson, 2012. "Does Aid Cause Trade? Evidence from an Asymmetric Gravity Model," The World Economy, Wiley Blackwell, vol. 35(5), pages 545-577, May.
    4. Balcilar, Mehmet & Kutan, Ali M. & Yaya, Mehmet E., 2017. "Testing the dependency theory on small island economies: The case of Cyprus," Economic Modelling, Elsevier, vol. 61(C), pages 1-11.
    5. Dunn, Leslie, 2011. "The Impact of Political Dependence on Small Island Jurisdictions," World Development, Elsevier, vol. 39(12), pages 2132-2146.
    6. Baldacchino, Godfrey, 2006. "Innovative development strategies from Non-Sovereign Island jurisdictions? A global review of economic policy and governance practices," World Development, Elsevier, vol. 34(5), pages 852-867, May.
    7. Cook, Paul & Kirkpatrick, Colin, 1998. "Labor market adjustment in small open economies: The case of Micronesia," World Development, Elsevier, vol. 26(5), pages 845-855, May.

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