AID FINANCING: IMPLICATION FOR EXPORT TRADE VOLUME

CHAPTER ONE

1.1  Background to the Study

Foreign aid constitutes the fund which takes the form of a gift, grant or a loan that is voluntarily transferred by country to another. Aid includes money transferred across borders by religious organizations, non-government organizations (NGOs) and foundations. Some have argued that remissions should be included, but they are rarely assumed to constitute aid.U.S. Foreign aid is paid by the federal government to other governments in the form of either economic assistance or military assistance. The granting of funds for trade promote investments and economic growth in the recipient country and the level of export.(McGillivray and Morrissey 1998;Suwa-Eisenmann and Verdier 2007) The exporters in the donor countries could also stand to benefit  as well from the macroeconomic effects of Aids for trades. The research therefore seek to investigate Aid financing; implication for export trade volume

 

 

 

 

1.2  Statement of the Problem

 

The impact of aid financing also portends negative trends as foreign aid does not appear to significantly increase the GDP growth of developing economies. This is because aid funds in benefiting country are misappropriate by some government officials for personal interest and can have negative influences on an economy, such as encouraging rent-seeking behavior (Economides, Kalyvitis and Philippopoulos, 2007).Rent-seeking behavior occurs when individuals in power pursue personal gain instead of investing the foreign aid in areas that would benefit the country as a whole. Although foreign aid could have a positive effect on a country’s economy if invested in the intended manner, however, the possible advantages are counteracted through governing self-interest. In effect, foreign aid is taken by a small, wealthy percent of the population, while the rest of the country remains just as poor as they were previously (Holtham and Economides, George, Sarantis Kalyvitis, and Apostolis Philippopoulos. "Does Foreign Aid Distort Incentives and Hurt Growth? Theory and Evidence from 75 Aid-Recipient Countries." Public Choice. 134.3/4 (2008): 463-488. Print. Hazlewood, 1976).4 Overall, receiving money transfers promotes nonproductive decisions by creating too much opportunity for personal gain. However, it continues to be heavily disputed whether aid is really growth enhancing. More importantly in the present context, it is open to debate whether donor countries would reap most of the benefits if trade intensified because of positive growth effects of aid. Principally, this channel should affect exports from donors and non-donors alike, unless the aforementioned goodwill effects result in trade diversion. Furthermore, aid-financed productive investments might also boost recipient exports. As Aid inflows can have adverse effects on the recipient country’s international competitiveness by giving rise to real exchange-rate appreciation. Consequently, the production of exportable would be discouraged in the recipient country. At the same time, imports would increase. Even though donor countries may supply only part of the additional imports, aid-induced effects would clearly work in favor of donor exports and against recipient exports. The problem confronting the research is to proffer an appraisal of Aid financing; implication for export trade volume

 

 

 

 

1.3  Objectives of the Study

To determine the Aid financing and its implication for export trade volume

 

 

1.4  Research Questions

What is Aid Financing?

What is the Aid financing implication for export trade volume?

 

 

1.5  Significance of the Study

The study proffers an appraisal   of Aid financing; implication for export trade volume

 

 

1.6  Research Hypothesis

Ho The implication of Aid financing on export trade volume is negative

 

Hi The implication of Aid financing on export trade volume is positive

 

 

1.7  Scope of the Study

The study focuses on the appraisal of Aid financing and its implication for export trade volume

 

1.8  Limitations of the Study

The study was confronted by some constraints including logistics and geographical factor

 

1.9  Definition of Terms

Foreign aid constitutes the funds which take the form of a gift, grant or a loan that is voluntarily transferred by country to another. Aids include money transferred across borders by religious organizations, non-government organizations (NGOs) and foundations. Some have argued that remissions should be included, but they are rarely assumed to constitute aid.U.S. Foreign aid is paid by the federal government to other governments in the form of either economic assistance or military assistance. The granting of funds for trade promote investment and economic growth in the recipient country  and the level of export.(McGillivray and Morrissey 1998;Suwa-Eisenmann and Verdier 2007) The exporters in the donor countries could also stand to benefit  as well from the macroeconomic effects of Aids for trades

 

USAID

An independent federal agency of the United States that provides aid to citizens   of foreign countries. Types of aid provided by USAID include disaster relief, technical assistance, poverty alleviation and economic development. The agency creates country-specific programs that provide tailored solutions based on individual needs. USAID is under the guidance of the Secretary of State.

 

 

REFERENCES

Adam, C.S. and D.L. Bevan (2006). Aid and the supply side: Public investment, export performance, export performance, and Dutch disease in low-income countries. World Bank Economic Review 20 (2), 261-290.

 

Anderson, J.E. & van E. Wincoop (2003). Gravity with gravitas: A solution to the border puzzle. American Economic Review 93(1), 170–192.

 

Arvin, M. and C.F. Baum (1997). Tied and untied foreign aid: A theoretical and empirical analysis. Keio Economic Studies 34 (2), 71-79.

 

Arvin, M., B. Cater and S. Choudhry (2000). A causality analysis of untied foreign assistance and export performance: The case of Germany. Applied Economics Letters 7 (5), 315-319.

Baier, S. and J. Bergstrand (2007). Do free trade agreements actually increase members' international trade? Journal of International Economics 71 (1), 72–95.

 

Berthélemy, J.-C. (2006). Bilateral donors’ interest vs. recipients’ development motives in aid allocation: Do all donors behave the same? Review of Development Economics 10 (2), 179-194.

 

 

Holtham and Economides, George, Sarantis Kalyvitis, and Apostolis Philippopoulos. Does Foreign Aid Distort Incentives and Hurt Growth? Theory and Evidence from 75 Aid-Recipient Countries." Public Choice. 134.3/4 (2008): 463-488. Print. Hazlewood, 1976).

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