Aid and trade: A donor's perspective

Foreign aid is given for a combination of economic, political, and humanitarian motives. While its impact on economic development in recipient countries has been the main focus of research recently, we concentrate on the question to what extent it also promotes donor countries’ exports. We examine this issue using Germany as a case study where the positive impact of aid on exports has been found to be extremely high. Using more advanced methods, we compute an average return (between EUR 1.49 to EUR 1.72) of one EUR of aid spent, well below previous findings, but still surprisingly large and robust.