Trade versus aid: donor generosity in an era of globalization

Abstract

Why do foreign aid budgets vary across countries and over time? Existing research indicates that the same set of factors shapes commitments toward both domestic and international redistribution. While scholars have acknowledged international normative influences on aid allocations, research on levels of donor generosity has not examined how international trade influences aid budgets. This paper examines whether imports from developing countries have a 'displacement effect' on aid commitments. Employing a panel of nineteen OECD donor countries, we analyze aid budgets from 1980 to 2000. We find that increased imports from developing countries to donor countries are associated with aid reductions. These results persist after controlling for international and domestic variables identified in previous research, and under other estimation techniques and model specifications.

Determinants of Donor Generosity: A Survey of the Aid Budget Literature

“…This might imply In addition to historical factors, the current degree of global engagement of donor countries is likely to shape their aid budgets (hypothesis 9). The number of international organizations in which a donor country is a member, the number of international nongovernmental organizations operating in a donor country, and the KOF Index of Globalization have been proposed as relevant political indicators (Lundsgaarde et al 2007;Brech and Potrafke 2012). 7 However, there is no empirical evidence that these indicators increase aid budgets.…”

“…Previous empirical studies find a positive 7 KOF is the acronym of the Swiss Economic Institute. 8 Alternatively, Lundsgaarde et al (2007) explain this (non)finding by the fact that more globalized countries transmit ideas in favor and against foreign aid.…”

Do Development Minister Characteristics Affect Aid Giving?

“…While Breuning (2001), Hicks et al (2014), and Lu and Breuning (2014) find that stronger female representation in parliament increases aid budgets, this finding is not confirmed by empirical evidence in Lundsgaarde, Breunig and Prakash (2007). 14 Analyzing US congressional roll call votes, OlsenTelles (2013) finds that female legislators are less likely to support military aid as expected, but-in contrast to expectations-they do not appear to be more supportive of economic aid.…”

“…However, such a relationship does not appear to be conclusive. For example, Lundsgaarde et al (2007) find political ideology to be insignificant, and, according to Bertoli et al (2008), right-wing governments provide even more aid. Analyzing German aid allocation, Dreher et al (2015b) similarly find that aid commitments from ministries led by the Social Democrats are lower than those run by conservatives or liberals.…”

Does Trade Openness Contribute to Driving Financing Flows for Development?

“…Dudley and Montmarquette (1976), Neumayer (2003a), and Younas (2008) have demonstrated that higher total exports from donor countries to the recipient countries results in greater aid allocation. Lundsgaarde et al (2007) provided empirical evidence that donors' imports from developing countries as a share of donors' GDP is significantly and negatively associated with the generosity of these donors, measured by the ratio of ODA provided by a donor to its gross national product (GNP).…”