Does German Development Aid boost German Exports and German Employment? A Sectoral Level Analysis

Abstract

This paper uses an augmented gravity model of trade to investigate the link between German development aid and sectoral exports from Germany to aid recipient countries with data from 1978-2011. The findings indicate that in the long run each dollar of German aid is associated with an average increase of US$ 0.83 US of German goods exports. The sectors that benefit the most in terms of exports and employment are machinery, electrical equipment and transport equipment. According to our estimates using input-output analysis and a partial equilibrium framework, the aid-induced gains in sectoral exports are associated with the gross employment of approximately 216,000 people.

Effects of Development Aid on Donor’s Exports: A Case of the Czech Republic

“…Literature (Nowak-Lehmann et al, 2009 suggests that aid is a statistically significant positive factor for the growth of German exports with one US dollar spent on aid bringing on average 0.83 to 1.50 USD back in German exports (figures vary based on the studies). Furthermore, it appears to have also a significant and positive impact on German employment with 216,000 jobs in Germany being associated with export production triggered by the provided aid (Martínez-Zarzoso et al, 2016).…”

“…Existing literature (Martínez-Zarzoso et al, 2016, Otor, 2014 indicates that development aid might affect donor's trade flows from and to the recipient countries and might be therefore used by donors to promote their economic interests in the developing regions. This suggestion is also supported by the fact that most members of the Organisation of Economic Development and Co-operation (OECD) direct their aid funds to their important trading partners in the developing regions (Berthélemy, 2006, Hoeffler andOutram, 2011), with the Czech Republic being no exception to the rule as the amount of Czech export is a significant factor of country selection and aid allocation as well (Harmáček et al, 2017).…”

“…Furthermore, donor countries and especially those from the OECD group have made international pledges to increase their aid volumes to 0.7% of their gross national incomes (GNI) by 2030and 0.33% of GNI in the case of the Czech Republic (OECD, 2015)and do therefore more and more focus on the return of their aid which can be achieved and measured by improved exports to the supported developing countries (Martínez-Zarzoso et al, 2016). Several studies (Noh and Heshmati, 2017, Otor, 2014 have been conducted to evaluate the return of aid provided by the OECD member but also non-member donor countries, however, to the author's knowledge, there is no analysis focusing on the Czech Republic specifically.…”

Transfers in the gravity equation

“…Martínez‐Zarzoso et al. (2016) study the effect of German aid on German sectoral exports and find the highest effect for machinery, electrical equipment and transport equipment.…”

Transfers in the Gravity Equation: The Case of Foreign Aid

“…Silva and Nelson (2012) consider all donors and recipients. In other studies single donors have been examined (Martínez-Zarzoso et al, 2009;Hansen and Rand, 2014;Martínez-Zarzoso, Nowak-Lehmann D., Klasen and Johannsen, 2016). Usually, an effect of aid on donors' exports is found, and the political effect is significant, even though displacement is found in few instances.…”