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Working Paper
On the substitutability between foreign aid and international credit
We examine the effect of relaxing a binding borrowing constraint for a recipient country on theamount of foreign aid it receives. We do so by developing a two-country, two-period trade-theoretic model. The relaxation of the borrowing constraint reduces the flow of foreign aid, suggesting that the donor views developing nations' access to international credit markets as a substitute for foreign aid.
Working Paper
Poverty, political freedom, and the roots of terrorism in developing countries: An empirical assessment
This paper finds that political freedom has a significant and non-linear effect on domestic terrorism, but this effect is not significant in the case of transnational terrorism. Some of our other novel findings are that while geography and fractionalization may limit a county?s ability to curb terrorism, the presence of strong legal institutions deters it. ; Earlier title: "What spurs terrorism in developing nations?"
Working Paper
Foreign direct investment, aid, and terrorism: an analysis of developing countries
Using a dynamic panel data framework, we investigate the relationship between the two major forms of terrorism and foreign direct investment (FDI). We then analyze how these relationships are affected by foreign aid flows. The analysis focuses on 78 developing countries for 1984- 2008. Our findings suggest that all types of terrorism depress FDI. In addition, aid mitigates the negative effects of total and domestic terrorism on FDI; however, this is not the case for transnational terrorism. This finding highlights that different forms of terrorism call for tailoring mitigating strategies. ...
Journal Article
Terrorism, Trade, and Welfare
For a standard competitive trade model, the authors show that the incidence of terrorism in different nations can affect the pattern of trade. Nations with a greater incidence of terrorism will export goods that are more immune to terrorism-related disruptions, while importing more terrorism-impacted goods. In addition, terrorism can be welfare augmenting for some nations because of terms-of-trade externalities. Finally, the authors present some qualitative conditions that identify when a nation?s trade volume may rise (or fall) in response to a greater incidence of terrorism. Given the ...
Working Paper
Trade and Terrorism: A Disaggregated Approach
This paper constructs a model of trade consequences of terrorism, where firms in trading nations face different costs arising from domestic and transnational terrorism. Using dyadic dataset in a gravity model, we test terrorism?s effects on overall trade, exports, and imports, while allowing for disaggregation by primary commodities and manufacturing goods. While terrorism has little or no influence on trade of primary products, terrorism reduces trade of manufactured goods. This novel finding pinpoints the avenue by which terrorism harms trade and suggests why previous studies that looked at ...
Journal Article
Do donors care about declining trade revenue from liberalization? an analysis of bilateral aid allocation
Many developing-country governments rely heavily on trade tax revenue. Therefore, trade liberalization can be a potential source of significant fiscal instability and may affect government spending on development activities-at least in the short run. This article investigates whether donors use aid to compensate recipient nations for lost trade revenue or perhaps to reward them for moving toward freer trade regimes. The authors do not find empirical evidence supporting such motives. This is of some concern because binding government revenue constraints may hinder development prospects of some ...
Working Paper
Do donors care about declining trade revenues from liberalization? an analysis of aid allocation
Many developing country governments rely heavily on trade tax revenue. Therefore, trade liberalization can be a potential source of significant fiscal instability, and may affect government spending on development activities. Donor nations may take this into account in making their aid allocation decisions for developing nations. Our findings suggest that bilateral donors provide substantially larger amounts of aid to compensate (or reward) liberalizing recipient nations who also face declining trade tax revenues. Interestingly, these effects are statistically insignificant in the context of ...
Working Paper
Terms-of-Trade and Counterterrorism Externalities
This paper investigates the interplay of trade and terrorism externalities under free trade between a developed nation that exports a manufactured good to and imports a primary product from a developing nation. A terrorist organization targets both nations and reduces its attacks in response to a nation?s defensive counterterrorism efforts, while transferring some of its attacks abroad. Terms-of-trade considerations lead the developed nation to raise its counterterrorism level beyond the ?small-country? level, thus compounding its over provision of these measures. By contrast, the developing ...
Journal Article
Do countries with greater credit constraints receive more foreign aid?
Donor nations may recognize that some developing nations face credit constraints in the world capital market. This knowledge may prompt donors to increase aid flows to alleviate the constraint. In such a situation, flows of foreign aid and foreign loans to developing nations may be substitutes for each other. The authors use data from 114 aid-recipient countries over the 1997-2008 period to investigate the relationship between foreign aid and foreign loans. The central finding is that this relationship is negative, lending support to the substitution hypothesis.
Working Paper
Financing growth: foreign aid vs. foreign loans
Compared to foreign grants, do concessional loans from foreign governments and/or unsubsidized loans from foreign private banks lead to faster growth in developing nations? The answer has implications for aid agencies (i) in allocating a given amount of resources between grants and concessional loans; and (ii) in encouraging financial market reforms. We examine the effects of ODA grants, concessional ODA loans, and private offshore bank loans on growth rates of 131 developing nations over 1996-2010 in a unified way. We find evidence of non-linearities in all three relationships, suggesting ...