Aid and trade - an empirical study

In the early 1990s, donor countries tied approximately 50% of their foreign aid to exports. The export stimulation of aid may have exceeded the amount that is directly tied. This paper uses the gravity model of trade to statistically test the link between aid and export expansion. The results suggest that aid is associated with an increase in exports of goods amounting to 133% of the aid. The paper also makes comparisons among donors and finds that Japan, which has drawn harsh criticism for using aid to gain unfair trade advantages, derives no more merchandise exports from aid than the average donor. (C) 2003 Elsevier Science (USA). All rights reserved.