Estimating the Evolving Trade Effect of Foreign Aid in the Context of Aid Competition: Evidence From European Countries

Hongyi Xu, Zesheng Sun and Hao Chen

Journal of International Development, 2025, vol. 37, issue 2, 584-606

Abstract: This paper explores the evolving trade effect of foreign aid using data from European countries from 1962 to 2020 in the context of multidonor competition. Our varying‐coefficient panel shows a significant country‐ and time‐heterogeneous trade effect of European donors' aid; however, aid competition can produce a mix of trade promotion and inhibitory effects. Estimations of aid's evolving trade effect reveal that donors' aid scale and (export) industrial concentration have a positive effect on promoting the trade–aid relationship with aid scale showing a reverse U‐shaped effect; the share of Aid for Trade (AfT) exerts a negative effect, and the donor's trade deficit demonstrates a positive impact on aid–trade effect.

Date: 2025
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https://doi.org/10.1002/jid.3976

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jintdv:v:37:y:2025:i:2:p:584-606

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