Untied Aid and Exports: Do Untied Aid Disbursements Create Goodwill for Donor Exports?

Abstract

This paper investigates whether untied aid inflows cause donor exports to increase, reflecting creation of goodwill by the donor in a recipient country. The causation could, however, be in the opposite direction, i.e. it could be that donors with strong export performance choose to give high aid, or it could proceed in both directions simultaneously. Using time-series data on Canadian aid and exports to 35 developing countries we investigate the direction and sign of the causal relations. We conclude that they are not all of one type. Results vary across the samples based on region, income, and ties to Canada.

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