Abstract
Developed countries are motivated by several forces when allocating aid to developing countries. The forces could be humanitarian in one country, and commercial self-interests in another. The principal objective of this study was to determine the effectiveness of aid as a promotional strategy for trade, and to investigate whether major donor countries are optimally allocating their aid resources to increase their export and total trade.
Models were developed to explore the effectiveness of aid as a promotional instrument for exports and total trade. Donor exports and total trade were expressed as functions of aid, per capita GNP of the recipient country, and aid from competing donors. The study showed that exports and total trade responded to total expected aid contributions and per capita GNP of the recipient countries. Also, all donors, but one, were maximizing the returns to aid, given the level of trade with recipient countries and will be reluctant to increase aid flows, given the current trade level.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
See W.R. Stent, “The Jackson Report—A Critical Review,”Australian Outlook Vol. 39, No. 1 (1985); and N.D. Karunaratne, “Holistic Analysis of Trade Versus Aid Issues: World and Australian Insights,”The Developing Economies XXIV-1 (March 1986), pp. 44-55.
A. Maizels, and M.K. Nissanke, “Motivations for Aid to Developing Countries,”World Development Vol. 12, No. 9 (1984), pp. 879–900.
J. White,The Politics of Foreign Aid (London: Affiliated Publishers, 1974), 316 Pg.
R. Riddell,Foreign Aid Reconsidered, (Baltimore: The Johns Hopkins University Press, 1987), 309 pp.
P. Mosley,Overseas Aid: Its Defense and Reform (Sussex, Brighton: Wheatsleaf Books Ltd., 1987), p. 264.
The European Economic Community, Scandinavia and Canada supported the 15 percent target, but neither Japan nor the United States was prepared to accept the deadline of 1985. See T.G. Weiss, and A. Jennings, “What are the Least Developed Countries and What Benefits May Result from the Paris Conference?,”World Development Vol. 11, No. 4, (1983), pp. 337–357.
OECD: The Organization for Economic Cooperation and Development is an organization of twenty countries from the Western world including all of those in Europe and North America. Its major objective is to assist the economic growth of its member nations by promoting cooperation and technical analysis of national and international economic trends. See K. Marsden, and R. Alan, “The Political Economy of Foreign Aid: A World Bank Perspective,”Labour and Society Vol. 8, No. 1 (January-March, 1983), pp. 2–12.
D. Schumacher, “Repercussions of Development Aid on the Economy of Donor Countries: The Case of the Federal Republic of Germany,”Development and Peace Vol. 6(1985), pp. 112–129.
R.S. May, and N.C. Dobson, “Some Trade Aspects of Aid: The British Experience,”National Westminster Bank Quarterly Review (Feb., 1982), pp. 46-58; and R.S. May, “The Impact of the United Kingdom’s Bilateral Aid Programme and the British Industry,”ODI Review No. 2 (October, 1979), pp. 1-22.
R.D. McKinlay, “The German Aid Relationship: A Test of the Recipient Need and the Donor Interest Models of the Distribution of German Bilateral Aid 1961-1970,”European Journal of Political Research 6 (1978), pp. 235–257.
C. Jepma, and M. Quist, “The Direct Impact of Foreign Aid on Trade: The Case of the Netherlands,”European Association of Development Research and Training Institute Vol. 1 (1986), pp. 29–45. The regional concentration coefficient (r.c.c.) of country j in year t can be defined as the amount of aid the Netherlands gives to country j in year t.
K.R. Gunjal, “The Effects of Trade Promotion on Canadian Agricultural Exports,”Northeastern Journal of Agricultural and Resource Economics Vol. 14, No. 2 (1985), pp. 184–192.
See “Successfully Selling Abroad: The Agricultural Market Development Program,”United States Agricultural Export Development (Washington, DC: U.S. Agricultural Export Development Council, 1985), pp. 1-18.
See P. Mosley, “The Political Economy of Foreign Aid: A Model of the Market for a Public Good,”Economic Development and Cultural Change Vol. 33 (1985), pp. 373–94; and “The Quality of Overseas Aid”ODI Review No. 2 (1982), pp. 46–55.
The aid data were collected from the OECD, Geographic Distribution of Financial Flows to Developing Countries. The trade data were collected from theUnited Nations Yearbook of International Trade Statistics 1965-1982. The income data were collected from the United States Arms Control and Disarmament Agency. The GNP figures were divided by the population to obtain the GNP per capita. The data were reduced to constant 1970 dollars by using 1970 as the base year. The figures used for aid were net overseas development assistance or net ODA, which encompasses all official grants and concessional loans, in currency or in kind, which are broadly aimed at transferring resources from developed to less-developed nations.International Monetary Fund International Bank for Reconstruction and Development, Direction of Trade 1963-1986. (Washington, D.C.).United States Arms Control and Disarmament Agency, 1986 “World Military Expenditures and Arms Transfers” (Washington, DC: U.S. Gov’t. Printing Office, 1965-1986).United Nations, Yearbook of International Trade Statistics, 1965-1982. (New York).Organization for Economic Co-operation and Development, 1965-1987, “Geographical Distribution of Financial Flows to Developing Countries” (Paris: CEDEX). 16. E.L. McClelland, L. Polopolus, and L.H. Myers, “Optimal Allocation of Generic Advertising Budgets,”American Journal of Agricultural Economics 53 (1971), pp. 565-572. 17. A.P. Zentler, and D. Ryde, “An Optimum Geographic Distribution of Publicity Expenditure in a Private Organization,”Management Science Vol. 2, No. 4 (1956), pp. 337-572. 18. The mathematical calculations were made by subtracting equations in Table 2 from those in Table 1, and then finding the first and second derivatives, e.g. 74-001 19. See M.M. Bober,Karl Marx’s Interpretation of History, 2d ed. (New York: The Norton Library, 1948), 442 pg. 20. See Brandt Commission,North-South: A Programme for Survival: Report of the Independent Commission on International Development Issues (London: Pan Books, 1980). 21. DAC is Development Assistance Committee of the Organization of Economic Cooperation and Development (OECD).
E.L. McClelland, L. Polopolus, and L.H. Myers, “Optimal Allocation of Generic Advertising Budgets,”American Journal of Agricultural Economics 53 (1971), pp. 565–572.
A.P. Zentler, and D. Ryde, “An Optimum Geographic Distribution of Publicity Expenditure in a Private Organization,”Management Science Vol. 2, No. 4 (1956), pp. 337–572.
See M.M. Bober,Karl Marx’s Interpretation of History, 2d ed. (New York: The Norton Library, 1948), 442 pg.
See Brandt Commission,North-South: A Programme for Survival: Report of the Independent Commission on International Development Issues (London: Pan Books, 1980).
About this article
Cite this article
Jolly, C.M., Gadbois, M.A. Foreign aid as a promotional strategy. Rev Black Polit Econ 18, 59–74 (1989). https://doi.org/10.1007/BF02717885
Issue Date:
DOI: https://doi.org/10.1007/BF02717885