Do Donors Care About Declining Trade Revenue from Liberalization? An Analysis of Bilateral Aid Allocation

Abstract

Many developing-country governments rely heavily on trade tax revenue. Therefore, trade liberalization can be a potential source of significant fiscal instability and may affect government spending on development activities—at least in the short run. This article investigates whether donors use aid to compensate recipient nations for lost trade revenue or perhaps to reward them for moving toward freer trade regimes.

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