Martínez-Zarzoso, Inmaculada Nowak-Lehmann D., Felicitas Klasen, Stefan Larch, Mario
Year of Publication:
Proceedings of the German Development Economics Conference, Zürich 2008 No. 26
Verein für Socialpolitik, Ausschuss für Entwicklungsländer, Göttingen
This paper uses a static and dynamic gravity model of trade to investigate the link between German development aid and exports from Germany to the recipient country. The findings indicate that German aid is associated with an increase in exports of goods that is larger than the aid flow, with a point estimate of 133% of the aid given. The paper also distinguishes among recipient countries and finds that the return to aid of German exports is higher for countries considered as "strategic aid recipients" by the German government. In addition, the evolution of the estimated coefficients over time shows an effect that is always positive but oscillates over time. Interestingly, in the 2001-2005 a steady increase on the effect of aid on trade can be observed after a decrease in the second half of the nineties.