Heterogeneous Effects of Aid-for-Trade on Donor Exports: Why is Japan different?

         
Author Name NISHITATENO Shuhei (Research Associate, RIETI) / UMETANI Hayato (Kobe University)
Creation Date/NO. October 2022 22-E-100
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Abstract

This study estimates the Aid-for-Trade (AfT)-export elasticity from the donor perspective, using panel data covering 45 donor and 140 recipient countries over the 2002–2019 period, focusing on the top-five donors: Japan, Germany, France, US, and UK. The method involves estimating a structural gravity equation with the Poisson pseudo-maximum likelihood (PPML) technique. We find that the AfT-export elasticity for Japan is positive and large. In particular, the findings suggest that Japanese AfT generates net export expansion from the recipient countries, in contrast to AfT from the other top donors, which expands net imports from these countries. We further examined the potential mechanism behind the export creation effect of the Japanese AfT using unique contract data on worldwide infrastructure-related projects in which Japanese AfT is heavily concentrated. The results suggest that the Japanese infrastructure-related AfT works as an informal tying arrangement that closely links aid to donor exports. The focus of Japanese AfT on economic infrastructure offers a model for achieving mutual benefits for both donor and recipient countries.