Aid and trade relationships in East Asia

Abstract

We take as our starting point two features of the East Asian experience. First, the period increase in trade among and between the countries in the region. Second, the large capital flows to and within the region. An important component of these capital inflows, at least until the 1980s, was aid, which is still an important source of capital for many countries in the region. We suggest that aid and trade flows may be linked, and assets how relevant this may be in East Asia. No donors give aid for purely altruistic motives; all desire to derive commercial and political benefits from their aid programme. In Section 2 we outline the various explanations of why we may expect to see a relationship between aid and trade flows, and demonstrate that a number of different links are possible. Section 3 briefly reviews some of the empirical evidence, that existing trade ties influence donor decisions on where to allocate their aid, contrasted with the possibility that it is aid links which support and promote donor exports to recipient countries. Recent data for East Asia are presented and discussed in Section 4, which considers the implications for donor-recipient relations. Section 5 concludes and considers the directions for future research.