Development goals, commercial interest and EU aid-for-trade

Abstract

The extent to which official development assistance (ODA) conforms to internationally agreed goals and principles of aid effectiveness may be influenced by donors’ national interests. Disentangling the extent to which national ODA is motivated by development goals vs. commercial self-interest is difficult. European Union (EU) member states provide external aid through EU-level institutions and independently through national aid programs. Theory suggests pooled EU-level aid facilitates satisfying development effectiveness principles while bilateral ODA is more likely to reflect national interests. We investigate this hypothesis for a subset of ODA, aid for trade (AfT), provided by donors to recipient countries between 2002 and 2018. We find a strong, statistically significant positive relationship between AfT provided by EU donors and their exports to recipient countries. In contrast, AfT provided by EU institutions and non-European states enhances merchandise imports from recipient countries.