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Foreign Aid and Free Trade and Their Effect on Income: A Panel Analysis

Abdiweli M. Ali and Hodan Said Isse
The Journal of Developing Areas
Vol. 41, No. 1 (Fall, 2007), pp. 127-142
Stable URL: http://www.jstor.org/stable/40376162
Page Count: 16
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Foreign Aid and Free Trade and Their Effect on Income: A Panel Analysis
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Abstract

This paper uses a panel approach and annual observations of over 150 countries for the period 1975 - 2000 to examine the impact of foreign aid and trade on income. The paper addresses the simultaneity of international trade, foreign aid and economie performance by using a full information System or three-stage least squares approach. The findings of this paper strongly suggest that foreign aid and trade are strong determinants of GDP per worker, albeit in opposite directions. The regression results are robust to the inclusion of a multitude of exogenous variables that are considered to be déterminants of GDP per worker. Foreign aid is a commonly owned resource, powerful individuai s and state heads establish property right in the System and, as a resuit, rent extractors expend resources resisting deregulation that attempt to remove that privilege. On the other hand, the empirical evidence reaffirms that international trade appears complementary to economie performance.

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