Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/211233
Authors: 
Martínez-Zarzoso, Inmaculada
Year of Publication: 
2019
Series/Report no.: 
WIDER Working Paper No. 2019/5
Abstract: 
This paper presents a review of recent studies that estimate the trade effects of foreign aid. It also provides new results obtained using panel data techniques to estimate the direct effects of aid on international trade, accounting for countries' participation in free trade agreements, and the indirect effects that aid exerts on income through trade. A structural gravity model of trade augmented with aid and free trade agreement variables is estimated for a cross-section of 33 donor countries and 125 recipient countries over the period 1995 to 2016. In a second step, the indirect effect of aid on income is estimated using a control function approach and instrumental variable techniques. The main results indicate that development aid has a robust direct effect on donor exports (the effect on recipient exports, however, is not robust). It also has an indirect positive effect on income levels in the recipient countries. The effects are heterogeneous and vary by region.
Subjects: 
bilateral aid
exports
free trade agreements
gravity model
Persistent Identifier of the first edition: 
ISBN: 
978-92-9256-639-5
Document Type: 
Working Paper

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