The Impact of Official Development Assistance on Donor Country Exports : Some Empirical Evidence for Switzerland

Abstract

This study is a first comprehensive attempt to investigate the relationship between Swiss bilateral official development aid (ODA) and Swiss exports performance. We use data on aid and exports of goods for a large number of recipient countries since the 1960s to study the presumed aid-exports nexus. Apart from stylised facts, the present study combines both strands of the econometric methodology, namely time-series analysis and structural econometrics. The results show that there is no overwhelming evidence in favour of a reverse causality running from exports to aid that would invalidate our econometric modelling. The estimation of a structural econometric model suggests, generally speaking, a positive and quite strong impact of aid on exports. However, the results can vary according to the degree of aggregation, the econometric techniques used and the time period chosen. In particular, the impact of ODA on exports can be quite different across individual recipient countries. There are also clear indications that the full impact of ODA on exports takes time to materialise. This tends to validate the goodwill hypothesis for Switzerland. Finally, while Swiss exports seem not to benefit from other DAC countries aid, they turn out to be highly sensitive to recipient country’s growth.