Does official development assistance affect a donor’s exports? South Korea’s case

Bobae Noh () and Almas Heshmati ()
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Bobae Noh: Center for International Development, Korea Development Institute

SN Business & Economics, 2021, vol. 1, issue 10, 1-28

Abstract: Abstract This paper studies the impact of official development assistance (ODA) provided by South Korea for its exports to recipient countries. The empirical analysis is based on data from 1996 to 2014 and covers 121 recipient countries. The paper uses a 3SLS estimation method that accounts for a two-way causal relationship between ODA and exports while the endogeneity and sample selection bias are accounted for. Using the gravity model, we confirm the positive effects of ODA when fixed unobserved effects are controlled. The model is further generalized by disaggregating ODA into its underlying types of aid. Our results show that technical cooperation and loans have positive and significant effects, but grants have a negative impact on South Korea’s exports to recipient countries. In addition, we also examine South Korea’s ODA allocations. Our findings suggest that there is a two-stage decision-making process in the provision of aid. In the first stage, the aid’s humanitarian purpose plays a key role in responding to countries’ needs even when there is lower bilateral trade with these countries. In the second stage, decisions regarding the size of ODA are considered and these present a mixed purpose for giving ODA to higher importer countries.

Keywords: Gravity model; Official development assistance; Exports; Three-stage least squares; South Korea (search for similar items in EconPapers)
JEL-codes: F14 F21 F35 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s43546-021-00145-7

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