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 11: Aid for trade: the case of Asia and Oceania nations

Rukmani Gounder


Foreign aid to developing countries over the past five decades has undergone many changes in addressing economic and social development of the recipient countries. The focus of aid to support these various development programmes for poverty reduction and meet specific targets of the millennium development goals has been extended to include aid for trade (AfT) activities. Giving aid to assist developing countries’ needs is also seen to promote commercial interests of the donors (Gounder, 1994; Berthélemy, 2006; Bandyopadhyay and Vermann, 2012). Foreign aid flows and trade nexus of many developing countries also indicate that aid is tied to recipients’ trade levels. The Organisation for Economic Co-operation and Development (OECD) policy on reducing tied aid was critical to recipients’ trade linkages. The goal of revitalizing and balancing aid and trade came into existence in 2005 owing to the failing Doha Round. This has contributed to AfT initiatives. Stiglitz and Charlton (2006, 2013) note the right to trade and the right to development by rethinking the AfT agenda as trade has been a significant part of nations’ economic activities. The role of AfT is to assist developing nations in trade strategy development and trade agreement negotiations, implement outcomes, improve infrastructure to effectively compete in the global markets, enhance the capacities to address standards, trade policy, regional integration, and competitiveness. This study, in evaluating the effectiveness of Australian and New Zealand AfT to the Asia-Pacific nations, examines the link between aid and trade expansion using the gravity model.

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