Aid for Trade and Global Growth

Aid for trade increases a recipient's public services, which lower its import and export transport costs. Formulating a two‐country endogenous growth model, we obtain two main results. First, a permanent increase in the donor's aid/gross domestic product (GDP) ratio raises the steady‐state growth rate as well as both countries' long‐run fractions and cost shares of imported varieties if and only if it lowers the product of transport costs. Second, under a plausible condition, there exists a unique interior growth‐maximizing aid/GDP ratio. These results are robust to alternative specifications for congestion and stock‐flow nature of public goods.     

Aid versus Trade: Some Considerations

Trade is the engine of development.
The biggest thing the developed world can do to alleviate poverty is remove trade barriers. The benefits of that are infinitely better than direct aid.
It is trade, not aid, that holds the key to creating jobs and raising incomes.
…we are very clear that it is through trade, much more than through aid, that we can enable the poorest people in the poorest countries of our world to start that journey of modernization, of economic reform—a pathway out of poverty and into prosperity.     

Energy and World Politics; The Politics of Aid,Trade and Investment

This article conducts a field-level analysis of institutional change in the pulp and paper industry in the state of Maine over the past 30 years. Furthermore, it considers the natural environment as a field-level actor, which can focus and redirect attention and resources, serve as a constraint on previously acceptable behavior, and act as a catalyst for institutional change.     

Aid, Taxation and Development in Sub-Saharan Africa

External aid donors have gradually shifted from a benign view of the African state to one that presumes a conflict of interest between the state and its own private sector. What are the implications of this diagnosis for the design of aid programs? We develop a model that locates slow growth in the overly narrow interests of a political elite. We study the impact of aid on policy choice and private investment and the role of conditionality in securing the gains from aid. The results capture key features of the current diagnosis while underscoring the need for more sophisticated treatments of domestic political institutions, institutional change, and donor motivations.     

International Trade, Regional Free Trade Agreements, and Economic Development

In 1991, Krugman illustrated that natural (regional) free trade agreements (FTAs) are likely to be welfare-enhancing if intercontinental costs are prohibitively high, but are likely to be welfare-reducing if such costs are zero. In 1995, Frankel, Stein and Wei extended the analysis to consider positive but nonprohibitive transport costs. This paper extends these models to allow for countries of different economic size. Large countries will tend to have higher relative wages, influencing the relative gains and losses from natural FTAs. For even modest differences in size, intracontinental FTAs are welfare-enhancing for larger countries, regardless of strong preferences for diversity or low intercontinental transport costs.     

Economic Development, Trade and Wages

We present models that allow the use of unskilled and skilled labor as well as capital and land. Thus agriculture, important in developing countries, can be included as well as two types of labor and a single (or two) type(s) of physical capital. The models are related to the simple 3×2 specific factors structure by means of what is called the linear neighborhood structure, wherein no activity uses more than two factors, and the two types of labor work in separated sectors, using in common a type of physical capital. We discuss how wage rate changes are related when endowments change, when agriculture becomes traded and prices rise, and when unskilled labor becomes educated and joins the ranks of skilled workers.     

International Trade, Technological Development, and Agglomeration

The paper focuses on how localized dynamic external economies of scale may cause uneven technological development internationally, and encourage regional agglomeration of industries. Location-specific technological progress depends on the absolute number of local innovating firms, and the relative number of innovating firms; i.e., the share of economic activity in a region that takes place within the innovating sector. The creation of industrial clusters contributes to explaining regional specialization, factor prices and welfare, and it appears that the critical size of a region regarding its ability to sustain an industrial cluster depends on whether factors of production are internationally mobile.     

Economic Development,International Trade,and Income Distribution

This paper applies the inframarginal analysis, which is a combination of marginal and total cost-benefit analysis, to investigate the relationship between division of labor, the extent of the market, productivity and inequality of income distribution. The model with transaction costs and exogenous and endogenous comparative advantages shows that as trading efficiency is improved the general equilibrium discontinuously jumps from autarky to partial division of labor with a dual structure, then to the complete division of labor where dual structure disappears. In this process different groups of individuals with different trading efficiency become involved in a certain level of division of labor at different stages of development. As the leading group becomes involved in a higher level of division of labor leaving others behind, a dual structure emerges and inequality increases. As latecomers catch up dual structure disappears and inequality declines. When the leader goes to an even higher level of specialization, dual structure occurs and inequality increases again. Inequality decreases again as the latecomers catch up. Hence, the equilibrium degree of inequality fluctuates in this development process. The relationship between inequality and productivity is neither monotonically positive nor monotonically negative. It might not be an inverted U-curve. The key driving force of economic development and trade is improvement in trading efficiency. Received January 8, 2002; revised version May 2, 2002 Published online: December 5, 2002     

Foreign Aid, Infrastructure Development and Welfare: An Intertemporal Analysis

The author examines the welfare implications of foreign aid within the framework of a two-period, two-country model of international trade. It is up to the donor country to decide what fraction of any given aid package is to be made available for the recipient's immediate consumption in period one, and what part should be allocated for investment in infrastructure that expands the recipient's production possibilities in period two. The focus of the analysis is on the conditions under which both countries agree or disagree on the manner in which the aid funds should be divided between the two options.     

Development Aid to Agriculture and Economic Growth

The link between foreign aid and economic growth has been a controversial issue with no strong consensus so far. This paper argues that a possible reason why some studies may conclude that aid is ineffective in promoting economic growth might be that not all aid is given for development purposes (i.e. aid given for strategic considerations, humanitarian reasons or emergency relief). This study classifies foreign aid into four subcategories: agricultural aid, social infrastructure aid, investment aid, and non‐investment aid. Using the generalized method of moments (GMM) estimation technique on a Barro type growth regression with panel data from the aid recipient economies, this paper finds that when aid is directed to the agricultural sector of the developing countries, it is positively and significantly related to growth and can affect economic growth in the short run.     

Promoting Trade Liberalization: Theoretical Analysis of Foreign Aid as Prize

We investigate whether foreign aid can be used to induce trade policy reforms. We develop a two‐period political economic model where promise of aid in period 2 depends on chosen tariff in period 1. We consider three scenarios depending on whether the donor is passive/active and whether the two governments move simultaneously or sequentially. We find a sufficient condition for unconditional aid to increase the level of optimal tariff, and the possibility of unconditional aid increasing optimal tariff decreases when the donor is active rather than passive.