A causality analysis of untied foreign assistance and export performance: the case of Germany

Abstract

Three questions regarding the relationship between untied assistance and donor country exports are investigated. First, do untied aid flows cause donor country exports to increase, reflecting the goodwill of the recipient towards the donor? Second, does strong export performance financially enable or politically encourage the donor country to increase its level of untied aid to the recipient? Third, does causality proceed in both directions simultaneously? Using German data for the period 1973–1995, results vary across subsamples defined according to the recipient countries' region, income and ties to Germany.