Japan’s Official Development Assistance and Exports to Asian Countries: The Donor’s Perspective

The study investigates the link between Japan’s bilateral official assistance (Official Development Assistance or ODA) and its exports to 15 recipient countries in Asia between 1972 and 2008. The study adopts the Dynamic Ordinary Least Squares and Error Correction Model econometric techniques, and the Gravity Model of international trade to examine the relationship. The aim is first to investigate the short-and long-run dynamic effects of Japan’s ODA on its exports to the recipient countries. Second, the study applies Granger causality analysis to examine the casual relationship, if any, between Japan’s ODA and its exports to the recipient countries. Third, the study also analyses the short and long-term effects of the bilateral official assistance from other (Japan excluded) development assistance committee’s countries (DAC) on Japan’s exports to the recipients. The primary findings of this study are as follows: (i) In the long-run, for US$1.0 of ODA spent by Japan, the average return is between US$1.41-US$1.86 in the pre-1992 period and between US$2.03-US$2.62 in the post-1992 period. In the short-run, the average return is between US$1.30-US$1.50. (ii) Consistent with previous empirical studies, the findings suggest that Japan’s ODA enhances its exports to the recipient countries, not vice versa - both in the short and long-run. (iii) Interestingly, and contrary to other case studies, the results suggest that ODA from other DAC countries does not crowd out but instead enhance Japan’s exports to Asian countries.