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Working Paper 2007-028A

"Do Donors Care about Declining Trade Revenues from Liberalization? An Analysis of Aid Allocation"
by Javed Younas, and Subhayu Bandyopadhyay

Many developing country governments rely heavily on trade tax revenue. Therefore, trade liberalization can be a potential source of significant fiscal instability, and may affect government spending on development activities. Donor nations may take this into account in making their aid allocation decisions for developing nations. Our findings suggest that bilateral donors provide substantially larger amounts of aid to compensate (or reward) liberalizing recipient nations who also face declining trade tax revenues. Interestingly, these effects are statistically insignificant in the context of multilateral aid. Multilateral donors are more focused on income per capita and may be using it as a de facto measure of average living standards in the recipient nations.

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Category > International
Author > Subhayu Bandyopadhyay
Research Papers and Publications: JEL Code > F35
Research Papers and Publications: JEL Code > H0