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Tuesday, May 4th 2021

Julie Lochard (UPEC and Inrae) will present "Global Value Chains: do they impact the allocation of foreign aid?", co-authors Basak Bayramoglu and Jean-François Jacques.

Abstract:

The rise of Global Value Chains (GVCs) in recent decades has induced significant changes in the organization and geography of world production, with consequences for bilateral and multilateral trade relations. In this paper, we investigate whether GVC-related bilateral trade is a driver of foreign aid allocation to developing countries. Using panel data on bilateral foreign aid from 22 donors to 127 recipient countries over the period 2002-2018, we find that a rise in the share of foreign value-added from a recipient country in donors' exports increases the amount of aid allocated to that country. We also undertake a country and sectoral decomposition to analyze whether dependence on foreign value added is stronger for some countries or in specific sectors. Our results, robust to endogeneity, suggest that donors allocate aid strategically, especially in some sectors, in order to secure supplies of specific goods and services or to negotiate lower prices and better bilateral contracts.