Foreign Aid and African Exporters: Help or Harm

Abstract

Export growth is pursued by many developing countries as a path to economic prosperity.  Consistent with this goal, many foreign donors have attempted to use aid to promote African exporters.  The relationship between foreign aid and exports is a complex one as aid comes from different sources and has varied destinations in the recipient country.  In this paper, we utilize a panel data set of African countries from 1970-2008 to examine the impact of foreign aid on exports.  The results find that aid designated for sectors such as infrastructure and education have a positive impact on exports while those going to agriculture and industry do not.  Results also show that both multilateral and bilateral aid has a positive impact on exports.  Also, less concessionary official development assistance does at least as well, if not better, in boosting exports as does more grant-based effective development assistance. There is significant evidence that natural resources and foreign aid are being viewed by donors, and functioning, as complements.  Evidence finds that sound economic policy by the recipient to be an important factor in export growth and that better policy can act as a substitute for foreign aid.  These results suggest the important of properly directing aid to the right sectors and promoting sound economic policies by recipient countries.

Keywords: Foreign Aid, Exports, Natural Resources, Africa