The European Journal of Comparative Economics

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EJCE Year: 2018, December. Volume: 15 - Issue: 2

Export Upgrading in Donor and Recipient Countries and Bilateral Development Aid Allocation

by Sèna Kimm Gnangnon

Start page: 249 - End page: 276

Keywords: Bilateral Aid, Export Product Diversification, Export Quality Improvement

Jel code: F35; F4

DOI: 10.25428/1824-2979/201802-249-276

Abstract:

This paper contributes to the literature on aid allocation by investigating whether export product upgrading (export product diversification and export quality improvement) in both donors and aid recipient-countries matters for donors' aid allocation. The analysis is conducted in a gravity type framework model over a panel dataset comprising 23 donor-countries and 126 recipient-countries over the period 1970-2010. The study uses both within fixed effects and fixed effects quantile regression estimators to perform the analysis. The empirical results suggest evidence that export product diversification in donor-countries does not influence their bilateral aid supply, but an improvement in their overall export quality does generate higher bilateral aid to recipient-countries. In the meantime, while export product diversification in recipient countries does not influence the bilateral aid these countries receive from donors, bilateral aid supplied by donors declines when recipient-countries experience higher overall export quality improvement. Finally, the impact of export upgrading in recipient-countries on the bilateral aid received from donors is dependent upon recipient-countries' level of economic development, proxied by their real per capita income.

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