Impact of foreign aid on growth and trade

Bhattarai, Keshab

Abstract

Foreign aid from the donors may or may not raise growth rates in receiving countries. In general they may increase investment but if the amount of aid is associated with conditionality of exports, that will have negative impacts on growth rates. Simulation of the analytical model shows that if TFP grows faster in the recipient countries more than in the donors then DCs can converge in the capital output ratios and investment saving ratios with similar growth patterns as their AC donors over the long horizon. If the resource ‡flows out of the developing countries in return to aid infl‡ows this will have harmful effects in growth of developing economies. Econometric estimates show that investment rather than aid was a factor contributing to growth in DCs. Exports tied to aid have been harmful for growth of recipient countries. British exports to developing Asian countries were more in‡fluenced by their level of per capita income than the amount of British aid to those economies.

Citation

Bhattarai, K. (2016). Impact of foreign aid on growth and trade. Journal of economics and development studies, 4(3), https://doi.org/10.15640/jeds.v4n3a4

• Journal Article Type: Article
• Acceptance Date: May 21, 2016
• Publication Date: 2016-09
• Deposit Date: Jun 3, 2016
• Publicly Available Date: Sep 30, 2016
• Journal: Journal of economics and development studies
• Electronic ISSN: 2334-2390
• Peer Reviewed: Peer Reviewed
• Volume: 4
• Issue: 3
• DOI: https://doi.org/10.15640/jeds.v4n3a4
• Keywords: Aid, Trade, Growth
• Public URL: https://hull-repository.worktribe.com/output/439117
• Publisher URL: http://jedsnet.com/vol-4-no-3-september-2016-abstract-4-jeds
• Additional Information: This is a copy of an article published in Journal of economics and development studies, 2016, v.4 issue 3.
• Contract Date: Jun 3, 2016