Aid for Trade and Global Growth

Author Name NAITO Takumi (Waseda University)
Creation Date/NO. March 2015 15-E-025
Research Project Trade and Industrial Policies in a Complex World Economy
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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/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.

Published: Naito, Takumi, 2016. "Aid for trade and global growth," Review of International Economics, Vol. 24(5), pp. 1178-1201