Does Korea follow Japan in foreign aid? Relationships between aid and foreign investment

Korea, an emerging donor country, largely considers its economic relations to recipients when allocating its aid. Such practices were preceded by Japan before the 1990s. We expect those similar practices between the two countries will make resemblance in aid outcomes. On a macro-level, we show similarities in aid allocations by type, region, income, and sector. The similarities are ascertained also at a micro-level by our statistical analysis on the relationships between aid and FDI. The analysis based on the FDI gravity model and panel dynamic system GMM estimation shows that only aids from Korea and Japan create more inflow of FDI into their respective recipient developing countries. Those are contrasted with other donors’ aids, which are not related to FDI or the substitute for FDI.     

Identifying Monetary Policy Shocks in Japan

It is sometimes argued that central banks influence the private economy in the short run by controlling a specific component of high-powered money, not its total amount. Using a structural VAR approach, this paper evaluates this claim empirically, in the context of the Japanese economy. I estimate a model based on the standard view that the central bank controls the total amount of high-powered money, and another model based on the alternative view that it controls only a specific component. It is shown that the former yields much more sensible estimates than the latter. J. Japan. Int. Econ., March 2000, 14(1), pp. 22–42. Department of Economics, Yokohama National University, 79-3 Tokiwadai, Hodogayaku, Yokohama 240-8501, Japan. Copyright 2000 Academic Press.Journal of Economic Literature Classification Numbers: E52, E58, C32.     

Foreign aid and fiscal response: Does aid disaggregation matter?

Foreign Aid and Fiscal Response: Does Aid Disaggregation Matter? —The present paper constitutes a new approach in the aid-effectiveness literature in two important respects. Firstly, it develops and then tests a model of foreign aid and fiscal response, which, for the first time in the aid-effectiveness literature, embraces the aiddisaggregation issue; we do this by disaggregating aid flows into three main components, namely programme aid, project aid and technical assistance, and by subsequently estimating our model for two countries, India and Kenya. Secondly, on the modelling front, we improve on earlier work in this area by using an appropriate specification for the recipient-country government’s welfare function, with significant positive implications for the empirical findings obtained. This new approach adopted in the paper and the empirical results obtained may have important implications for a better understanding of the fiscal impact of aid in aid-recipient countries.     

Uganda's experience with aid

This paper presents Uganda's experience with aid flows overthe period 1970-96. It discusses the compilation of aid dataand also reviews the chronological developments in aid flowsto Uganda. Over this period, the sectoral distribution and typeof aid is largely dictated by the government's economic programmesin place. The period 1962-71 largely reflects government borrowingfor on-lending to agriculture and industry whereas the period1979-85 shows a wider range of sector-specific programmes drivenby the need to reconstruct and rehabilitate the economy. Althoughthe need to reconstruct and rehabilitate the economy continued,support for policy reform began to take up an increasing proportionof aid over the period 1987-96. We also analyse the impact ofaid on some major macroeconomic variables and find that investmentand real exchange rate developments have been largely drivenby official development aid flows. Although we find a similarrelationship between aid and improved policy environment, thefindings show that in the latter part, i.e., 1992-6, the continuedpolicy reform was driven more by ownership of the programmethan by aid. Indeed, in this latter period, the aid/GDP ratiosdeclined. The major lesson drawn from this study is that ownershipof a reform programme is more critical for its success, henceour conclusion that aid should be used for financing ratherthan buying reforms.     

The OPEC aid record

Financial aid from OPEC is a novel phenomenon involving developing countries as donors. The record of OPEC aid is assessed using both OECD and UNCTAD data. The specific features of OPEC aid are analysed. The burden on donors and the benefits to recipients of OPEC aid are greater than suggested by conventional measures developed for DAC aid. The possible motivations of OPEC donors — ethical, economic and political — are discussed. The prospects of OPEC aid largely depend on future developments of oil prices and revenue needs in OPEC countries.     

Side-effects of planning in the aid control system

This paper argues that certain recurring problems in aid administration — long project lead times, high administrative costs, implementation delays, and managerial passivity and subterfuge — can be traced back to the ‘rational’ paradigm guiding the evolution of the aid control system. The unequal power relation over time among the partners coupled with an excessive emphasis on prior planning has led to a system for administering developmental assistance which is more costly and less effective than it need be, and which has an unintended anti-developmental bias.     

East European aid to India

The aid-relationship is part of a wider economic relationship between India and the East European countries, in a far more integrated sense than is the case with some of India's other donors. The group has been a significant though not a dominant source of aid to India, the USSR being the most important member of the group. Easy generalizations about the terms of East European aid, in comparison to aid from other sources, are not possible. The same is true for India's experience in the actual utilization of aid from various sources. The main usefulness of the East European countries as a source of aid has lain in their willingness to give aid for particular public-sector projects and in improving India's bargaining powers vis-à-vis other donors.     

Trade,aid and national development in Africa

Trade is crucial for economic growth, with exports providing earnings to finance imports. Trade also promotes investments and knowledge transfer. Trading countries exploit their comparative advantages to promote self-sufficiency, which is obviously better than dependence on foreign aid, whether low interest-bearing loans or transfer payments. All aid comes with some kind of conditionality attached, amounting to substantial burdens that often outweigh possible benefits. Donors often replace the administrative machinery of recipient governments, undermining their sovereignty and autonomy. These governments then struggle to extricate themselves from implied commitments to donors and prevent donor governments interfering in their domestic affairs. This paper looks at Africa's poor trade performance, arguing that among the consequences are the continent's continuing dependence on foreign aid and the accompanying burdensome negative sentiments from the rest of the world. It recommends that the new African programme New Partnership for Africa's Development be developed to a full economic integration to expand the regional markets.     

Identifying export opportunities for Greece

A decision support model (DSM) is presented and implemented in order to identify probable and realistic export opportunities for Greece. The aim of the model is to select those combinations of products and countries of destination (markets) that are attractive based on widely recognized criteria (such as country risk indicators, macroeconomic data, market shares, accessibility of destination country, degree of market concentration, etc.). The DSM consists of a filtering process during which the less attractive export opportunities are successively eliminated in order to focus on those markets that have the desired characteristics. International trade data at the HS six-digit level up to 2011 where used. The results indicate that there exist significant export opportunities for Greece. Export opportunities are listed and categorized according to criteria such as the market characteristics of the destination country and Greece’s market share.     

Identifying government spending shocks and multipliers in Korea

We construct a government spending news series in Korea based on Fisher and Peters (2010) by exploiting a market-weighted sum of excess stock returns of military contractors in Korea. We then use this military spending news series and estimate a structural VAR model to evaluate the effects of government spending. As a result, GDP and government spending show statistically significant responses to military spending news shocks. The accumulated government spending multiplier peaks after four quarters, and the five-year cumulative multiplier is calculated as 1.27. For a robustness check, different types of VAR models are tested and results are qualitatively similar.     

Foreign aid and domestic output in the long run

The principal argument of this paper is that the effect of aid on GDP depends on a trade-off that is country specific: aid has a direct positive effect through financing investment but an indirect effect through aggregate productivity that can be negative if aid exacerbates growth-retarding factors such as poor governance. Data for 59 developing countries over 1971–2003 are analysed to explore the trade-off and highlight the heterogeneous nature of the relationship between aid and output. We show that output, aid and investment comprise a cointegrated relation, and derive country specific estimates of the long run association between aid and output. These aid-output coefficients are, on average, negative but smaller than the positive investment-output coefficients. Insofar as aid is used to finance investment, the overall effect on output may therefore be positive. We also show that cross-country differences in the estimated long run aid-output coefficients can be explained mainly by cross-country differences in law and order, religious tensions and government size.     

Foreign aid as a promotional strategy

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.     

Motivations for aid to developing countries

This paper attempts to identify the underlying principles of aid allocation, and particularly the balance of motivations as between the needs of recipient countries and the interests of donor countries. Two alternative models are fitted by cross-country regressions to bilateral and multilateral aid flows to some 80 developing countries in 1969–1970 and 1978–1980. The first (recipient need) model assumes that all aid is given to compensate for shortfalls in domestic resources. This model provides a reasonable explanation for the distribution of multilateral aid, but it is clearly not applicable for bilateral aid flows. The second (donor interest) model assumes that all aid serves only donor interests, defined to cover political/security investment and trade interests. This model gives generally good explanations of bilateral aid, but is a poor fit for multilateral aid. The relative importance of the various donor interests differs sharply among donors. The paper ends with an analysis of the shift in the balance of aid over the 1970s towards the recipient need element, and with a reference to the sharp change in policy in the 1980s towards increasing emphasis on donor interest aid.     

Performance criteria and multilateral aid allocation

This study raises questions about past models for aid allocation, in particular the ‘two-gap’ model. It proposes an alternative method for allocating aid among developing countries, on the basis of need (as represented by per capita income) and country performance (measured by variables for relative effort in savings, exports, control of inflation, tax policy, and efficiency of resource use). Statistical tests are applied to actual lending patterns of the World Bank to determine the extent to which in practice the Bank relates lending to these proposed measures of need and performance.     

Identifying Financial Distress Indicators of Selected Banks in Asia

The banking sector plays a pivotal role in the economic development of most Asian countries. In 1997, a full-fledged banking and financial crisis took place in South Asian countries. Many banks had to be bailed out by their governments. It is believed that an examination of indicators that led to the problems suffered by banks in this region will be of enormous benefit. Models were developed for each country that identified banks experiencing financial distress as a function of financial ratios. The countries in the study include Indonesia, South Korea and Thailand. The banking sectors of these three countries are ideal for this study, as the banks enjoyed profitability during the pre-crisis period and were the most severely affected by the financial crisis in 1997. Logistic regression was used to analyze the data sample from 1995 to 1997. In the findings, capital adequacy, loan management and operating efficiency are three common performance dimensions found to be able to identify problem banks in all three countries. It is hoped that the financial ratios and results of the models will be useful to bankers and regulators in identifying problem banks in Asia.