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Tied Aid, Trade-Facilitating Aid or Trade-Diverting Aid?

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  • Pettersson, Jan

    (Department of Economics)

  • Johansson, Lars M

    (Department of Economics)

Abstract

Donor aid is often regarded as being informally tied (aid increases donorrecipient exports) and this effect is, in general, interpreted as being harmful to aid recipients. However, in this paper, using a gravity model, we show that aid is also positively associated with recipient-donor exports. That is, aid increases bilateral trade ows in both directions. Our interpretation is that an intensi ed aid relation reduces the e ective cost of geographic distance. We find a particularly strong relation between aid in the form of technical assistance and exports in both directions. When we disaggregate aid to specifically study the effects from trade-related assistance (Aid for Trade) the effect is small and fully accounted for by aid to investments in trade-related infrastructure. Our sample includes all 184 countries for which data is available during the period 1990 to 2005.

Suggested Citation

  • Pettersson, Jan & Johansson, Lars M, 2009. "Tied Aid, Trade-Facilitating Aid or Trade-Diverting Aid?," Working Paper Series 2009:5, Uppsala University, Department of Economics.
    • Handle: RePEc:hhs:uunewp:2009_005
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    Cited by:

    1. Nowak-Lehmann D., Felicitas & Martínez-Zarzoso, Inmaculada & Cardozo, Adriana & Herzer, Dierk & Klasen, Stephan, 2011. "Does Aid translate into Bilateral Trade? Findings for Recipient Countries," Proceedings of the German Development Economics Conference, Berlin 2011 61, Verein für Socialpolitik, Research Committee Development Economics.
    2. Felicitas Nowak-Lehmann & Inmaculada Martínez-Zarzoso & Dierk Herzer & Stephan Klasen & Adriana Cardozo, 2013. "Does foreign aid promote recipient exports to donor countries?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(3), pages 505-535, September.
    3. Muhammad Athar Nadeem & Zhiying Liu & Haji Suleman Ali & Amna Younis & Muhammad Bilal & Yi Xu, 2020. "Innovation and Sustainable Development: Does Aid and Political Instability Impede Innovation?," SAGE Open, , vol. 10(4), pages 21582440209, November.
    4. Savin, Ivan & Marson, Marta & Sutormina, Marina, 2020. "How different aid flows affect different trade flows: Evidence from Africa and its largest donors," Structural Change and Economic Dynamics, Elsevier, vol. 55(C), pages 119-136.

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    More about this item

    Keywords

    Foreign Aid; International Trade; Exports; Gravity; Aid for Trade;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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