Aid Versus Trade Revisited: Donor And Recipient Policies In The Presence Of Learning-By-Doing
We examine the (non) equivalence of aid and trade preferences as alternative forms of donor assistance in the presence of learning-by-doing externalities in recipient-country export production. Using a model based on van Wijnbergen (1985), we show that switching donor support on the margin from aid to trade preferences can increase recipient-country welfare. Simulations in which the productivity externality also interacts with private capital accumulation and fiscal distortions illustrate the potential growth and welfare gains from a revenue neutral re-orientation of donor assistance. We conclude by considering why these potential dynamic gains remain unexploited by both donors and recipients.
C. S. Adam and Stephen A. O'Connell.
"Aid Versus Trade Revisited: Donor And Recipient Policies In The Presence Of Learning-By-Doing".