Heterogeneous effects of Aid-for-Trade on donor exports: Why is Japan different?

This study estimates the Aid-for-Trade (AfT)-export elasticity from the donor perspective, focusing on the top-five donor countries: Japan, Germany, France, US, and UK. We find the elasticity for Japan is large, suggesting that the Japanese AfT generates a net export expansion, in contrast with the other top donors. We examine the potential mechanism behind the export creation effect of Japanese AfT using unique contract data on infrastructure-related projects worldwide. The results suggest that Japanese AfT, highly concentrated in economic infrastructure, works as an informal tying arrangement, closely linking aid to donor exports associated with capital goods for infrastructure construction.