Impact of Japan's ODA Loan on Asian Economic Developments

The fundamental aid philosophy of Japan is to support the self-help efforts of developing countries. In 1992, Japanese cabinet approved the Official Development Assistance (ODA) Charter, which comprehensively stated Japan’s basic aid policies. Japan has been the world’s largest donor country during the last ten years (Chart 1), although Japan’s ODA ratio over GDP remains lower than the UN target of 0.7 per cent (Chart 2). Several features of Japan’s ODA include a) high percentage of loans and high share of bilateral basis (Table 1), b) higher untied share while lower grant share (Chart 3), c) high percentage of loans to Asia (Chart 4), and d) high weighting for economic infrastructures (Chart 5). Japan’s ODA will be provided in a selective manner improving its effectiveness, efficiency and transparency. Its allocation both by regions and sectors are reviewed. Impact of Japan’s ODA capital flows into seven Asian countries: China, Indonesia, Malaysia, the Philippines, Thailand, Viet Nam and India (Chart 7); were simulated by a modified version of the standard GTAP Model with Version 4 database aggregating to 16 regions and 6 sectors (Table 2). Real GDP is estimated to expand by around 4 to 28 per cent and prices will decline by around 2 to 12 per cent in recipient countries (Chart 8). This would result in improvements of international competitiveness, therefore external balances, in those countries (Chart 9). In addition, industrial structures would be more or less affected by reallocation of production endowments (Chart 10). Income gains would also be shared by outside recipient countries through trade and income linkages under the assumption of dynamic capital accumulation (Chart 11). Those benefits could vary among the economies according to the destination of Japan’s ODA (Chart 12). Multipliers of capital increases in seven Asian countries are shown in Annex Tables.