Aid and Trade - An Empirical Analysis of the Impact of European Development Aid on Donor’s Exports

Abstract: This study examines the relationship between development aid and trade, specifically focusing on the impact of aid on exports for 14 European donor countries committed to allocating 0.70% of their Gross National Income (GNI) to official development assistance (ODA). The 14 selected countries account for 41.5% of global ODA disbursements. Estimating a structural gravity model using Pseudo Poisson Maximum Likelihood estimators and panel data covering the period from 1995 to 2021, the findings reveal a significant and positive relationship between European development aid and donor’s exports. One US$ more spent on development aid leads to an increase in exports of 0.19 US$ on average. Our findings show that the effect of aid on exports increases with more intense aid relationships Further, we apply several robustness checks to underpin our findings.