Handbook on the Economics of Foreign Aid
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Handbook on the Economics of Foreign Aid

Edited by B. Mak Arvin and Byron Lew

It would be fair to say that foreign aid today is one of the most important factors in international relations and in the national economy of many countries – as well as one of the most researched fields in economics. Although much has been written on the subject of foreign aid, this book contributes by taking stock of knowledge in the field, with chapters summarizing long-standing debates as well as the latest advances. Several contributions provide new analytical insights or empirical evidence on different aspects of aid. As a whole, the book demonstrate how researchers have dealt with increasingly complex issues over time – both theoretical and empirical – on the allocation, impact, and efficacy of aid, with aid policies placed at the center of the discussion.
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Chapter 10: Aid for trade: assessing the effects on recipient exports of manufactures and primary commodities to donors and non-donors

Philipp Hühne, Birgit Meyer and Peter Nunnenkamp


Primary commodity dependence continues to be a major concern of various developing countries. The commodity sector often constitutes the key economic activity in terms of foreign exchange earnings, fiscal revenues, income growth, and employment creation: ‘Out of 151 developing countries, 100 depend on commodities for at least 50 percent of their export earnings; moreover half of the countries in Africa derive over 80 percent of their merchandise export income from commodities’ (UNCTAD 2012: 11). Conversely, manufactures contribute a relatively small share to overall merchandise exports in developing countries with low and lower middle income. This share has hardly risen since the early 1990s, in contrast to the corresponding share for developing countries with upper middle income (Table 10.1). As stressed by Collier (2003), primary commodity dependence and weak export diversification are problematic in several respects. In addition to the well-known problem of coping with volatile export prices of raw materials, primary commodity dependence tends to be associated ‘with various dimensions of poor governance’ and increases ‘the risk of civil war’ (Collier 2003: 140). In particular African countries have traditionally been plagued with these problems.

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