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Competition for aid and trade policy

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  • Lahiri, Sajal
  • Raimondos-Moller, Pascalis

Abstract

This paper considers the optimal allocation by a donor country of a given amount of foreign aid between two recipient countries. It is shown that, ceteris paribus, a country following a more restrictive trade policy would receive a smaller share of the aid if the donor country maximises its own welfare. If, on the other hand, the donor country maximises the sum of the welfare of the two recipient countries, the result is just the opposite. We also analyse the situation where the recipient countries compete with each other for aid taking into account the behaviour of the donor. It is shown that this competition tend to lower the level of optimal tariffs in the recipient countries.
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  • Lahiri, Sajal & Raimondos-Moller, Pascalis, 1997. "Competition for aid and trade policy," Journal of International Economics, Elsevier, vol. 43(3-4), pages 369-385, November.
    • Handle: RePEc:eee:inecon:v:43:y:1997:i:3-4:p:369-385
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    3. Subhayu Bandyopadhyay & Javed Younas, 2009. "Do donors care about declining trade revenue from liberalization? an analysis of bilateral aid allocation," Review, Federal Reserve Bank of St. Louis, vol. 91(May), pages 141-154.
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    5. Bandyopadhyay, Subhayu & Lahiri, Sajal & Younas, Javed, 2011. "Should Easier Access to International Credit Replace Foreign Aid?," IZA Discussion Papers 6024, Institute of Labor Economics (IZA).
    6. Gil S. Epstein & Ira N. Gang, 2009. "Poverty and Governance: The Contest for Aid," Review of Development Economics, Wiley Blackwell, vol. 13(3), pages 382-392, August.
    7. Lahiri, Sajal & Raimondos-Moller, Pascalis, 2000. "Lobbying by Ethnic Groups and Aid Allocation," Economic Journal, Royal Economic Society, vol. 110(462), pages 62-79, March.
    8. Asiedu, Edward & Sadekla, Sylvester S. & Bokpin, Godfred A., 2020. "Aid to Africa’s agriculture towards building physical capital: Empirical evidence and implications for post-COVID-19 food insecurity," World Development Perspectives, Elsevier, vol. 20(C).
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    13. Subhayu Bandyopadhyay & Sajal Lahiri & Javed Younas, 2013. "Should Easier Access to Credit Replace Foreign Aid? A Trade-theoretic Analysis," Economics Bulletin, AccessEcon, vol. 33(3), pages 2320-2327.
    14. Lahiri, Sajal & Raimondos-Moller, Pascalis & Wong, Kar-yiu & Woodland, Alan D., 2002. "Optimal foreign aid and tariffs," Journal of Development Economics, Elsevier, vol. 67(1), pages 79-99, February.
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    18. Bandyopadhyay, Subhayu & Majumdar, Baishali, 2004. "Multilateral transfers, export taxation and asymmetry," Journal of Development Economics, Elsevier, vol. 73(2), pages 715-725, April.

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