Aid, Trade and Migration : How are OECD countries policies connected in times of crisis?

This paper aims at explaining how aid, trade and migration in developed nations are connected, in particular in times of economics crisis. It relates to a new strand of the aid allocation literature, which aims at determining how donors’ domestic policies and their political environment can delineate bilateral aid allocations. We use a gravity model framework to jointly determine aid, trade and migration between pairs of developed and developing countries as well as their relation to unemployment in OECD nations. Namely, we focus on the core determinants of these policies with the particular aim of determining whether aid, trade, migration and unemployment policies are interdependent or not. We apply a three-stage least squares method on a data set covering 22 Development Assistance Committee (DAC) countries and 153 recipient countries from 2000 and 2010. Our data reveal that not only aid, trade and migration policies affect respectively aid, trade and migration flows but also they affect each other. Likewise, these policies can be substitutes for developed countries unemployment policies.