Foreign Aid and Export Performance: A Panel Data Analysis of Developing Countries

Munemo, Jonathan; Bandyopadhyay, Subhayu; Basistha, Arabinda

doi:10.2139/ssrn.988773

Cited by 14 publications

(12 citation statements)

References 19 publications

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“…The traditional justification for foreign aid is that it eases the resource constraints of developing economies, especially on the supply side (Munemo et al, 2007). In this view, therefore, foreign aid is regarded as a positive coefficient on economic growth.…”

Section: Foreign Aidmentioning

confidence: 99%

Foreign aid on economic growth in Africa: A comparison of low and middle-income countries

Alemu

Lee²

2015

SAJEMS

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Previous empirical studies on the effects of foreign aid on economic growth have generated mixed results that make it difficult to draw policy recommendations. The main reason for such mixed results is the choice of a single aggregate list of countries, regardless of the disparities in levels of development. This study therefore fills the development gap by disaggregating the African data into a panel of 20 middle-income and 19 low-income African countries over a period of 15 years between 1995 and 2010, and employing a dynamic generalized method of moments (GMM) model to address the dynamic nature of economic growth as well as the problems of endogeneity. The results of this study support the theoretical hypothesis that a positive relationship between aid and GDP growth exists, but only for low-income African countries, not middle-income ones. On the other hand, the study reveals that middle-income African countries tend to experience a greater impact on their economic growth from foreign direct investment (FDI) and natural resources revenues, mainly oil exports. This implies that the frequent criticism that foreign aid has not contributed to economic growth is flawed, at least in the case of low-income African countries. In fact, foreign aid has played a critical role in stimulating economic growth in such countries through supplementing domestic sources of finance such as savings, thus increasing the amount of investment and capital stock in them.

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Section: Foreign Aidmentioning

confidence: 99%

Foreign aid on economic growth in Africa: A comparison of low and middle-income countries

Alemu

Lee²

2015

SAJEMS

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“…Kemp and Kojima (1985) attributed the donor-enrichment and recipient-impoverishment to the endogenous price distortion. Moreover, Munemo et al (2007) argued that the effect of foreign aid on the economic activity of a country can be dampened due to potentially adverse effects on exports resulting from real exchange rate appreciation.…”

Section: Transfer Paradoxmentioning

confidence: 99%

US and China Aid to Africa: Impact on the Donor-Recipient Trade Relations

Liu

Tang

2016

SSRN Journal

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This paper investigates the impact of the US and China's foreign aids to Africa on trade flows between donor and recipient countries. Evidence from the gravity model estimates reveals that the two donors' exports are strengthened by their aids to African partners.Interestingly, China's aid shows a positive effect on its total volume of trade and imports from Africa, while the aid from the US exhibits little impact on the US-Africa total trade and its imports from Africa. A possible explanation for such a difference could be due to the dissimilar national interests of donors in Africa. This study finally suggests that African countries should accelerate the pace of advancing domestic economies and rely less on foreign assistance, in order to establish a fairer and more equal international economic order. JEL Classification: F35, P33

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“…The relationship between foreign aid and export diversification is not conclusive. The traditional justification for foreign aid is that it eases the resource constraint of developing economies, especially on the supply side (Munemo et al, 2007). In this case, therefore, foreign aid is expected to have a positive coefficient for export diversification.…”

Section: X) Foreign Aidmentioning

confidence: 99%

“…An increasing export orientation of the manufacturing sector, accompanied by a rising share of manufactures in total exports, is part of the "normal" pattern of structural change in the growth process of developing countries. Since vertical diversification (VDIV) mainly implies out of primary into manufactured exports, it can be measured by the share of manufactured exports to total exports [Elbadawi, 1999;Wood and Mayer, 2001;Munemo et al, 2007;Osakwe, 2007; and others]…”

Section: Vertical Export Diversificationmentioning

confidence: 99%

“…Based on the theoretical analysis discussed above as well as some related empirical works such as: Osakwe (2007); Gylfason (2002); Bebczuky and Berrettoni 2006; Elbadawi (1999); Wood and Mayer (2001); Munemo (2007); Herzer and Nowak-Lehmann (2006); Parteka and Tamberi (2008); and others; the following determinants for export diversification have been identified:…”

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confidence: 99%

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Determinants Of Vertical And Horizontal Export Diversification: Evidences From Sub-Saharan Africa And East Asia

Alemu¹

2009

Ethiopian Journal of Economics

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This paper analyzes the main determinants of vertical and horizontal export diversification based on a balanced panel data for 41 countries from SSA and East Asia over the period 1975-2004; using FGLS estimation methods with corrected heteroskedasticity and autocorrelation. The results reveal that education, health, and income per capita, population size, infrastructural development and openness are crucial factors to induce vertical as well as horizontal export diversification. FDI was found to be a key factor to speed-up vertical and horizontal export diversification in East Asia, but only for vertical diversification in SSA. The elasticity's of human capital and FDI were much higher in East Asia than SSA. The intuition is that East Asian countries have devoted significant amount of investment on education, health, infrastructure and these in turn created a better conducive atmosphere for FDI inflow. The study also reveals domestic investment plays an important role to enhance vertical as well as horizontal export diversification for East Asia, while it only induces horizontal diversification for SSA. While 'arable land' resource has a positive and significant effect on vertical and horizontal diversification, 'oil' wealth was found to be negatively associated with export diversification. This implies that not all types of natural resource endowment have a 'Dutch disease' effect. While inflation, exchange rate, and foreign aid variables have a mixed effect on vertical and horizontal export diversification, political instability however has a strong adverse effect on export diversification; especially for SSA. The key lesson from East Asia to SSA is that investment on human capital and physical infrastructure through foreign investment as well as domestic capital formation are key ingredients, as are stable macroeconomic and political environment, a stable and flexible exchange rate, and a fair and an open trading framework in order to accelerate vertical and horizontal export diversification and ultimately promote structural change on the economy. In line with this, SSA countries should follow a dual strategy of vertical and horizontal export diversification, mainly by supporting backward and forward linkages into higher value-added resource-based industries and gradually shift production and exports from customary products to more dynamic ones by developing competitive advantage in the world market.

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Foreign Aid and Export Performance: A Panel Data Analysis of Developing Countries

Cited by 14 publications

References 19 publications

Foreign aid on economic growth in Africa: A comparison of low and middle-income countries

Foreign aid on economic growth in Africa: A comparison of low and middle-income countries

US and China Aid to Africa: Impact on the Donor-Recipient Trade Relations

Determinants Of Vertical And Horizontal Export Diversification: Evidences From Sub-Saharan Africa And East Asia

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