Is there a link between Canadian exports and official development assistance?

CIDP Newsletter

December 2017

NEW PUBLICATION

This report explores the relationship between Canadian official development assistance (ODA or foreign aid), and Canada’s trade with developing countries (specifically Canadian exports). We examine the relationship using an augmented gravity model. This is the first attempt to measure the elasticity of Canadian exports to aid .

Downloading Working Paper

Data and code files used in this analysis are available upon request to info@cidpnsi.ca .

Main Findings

We take a highly conservative and cautious approach in our econometric analysis and its interpretation. Our findings are consistent with the wider literature. We find a positive and statistically significant association between Canadian exports and ODA. This does not suggest causality, nor do we completely rule out reverse causation.

Nevertheless, for a subset of Canadian ODA-recipient countries over the period 1989 to 2015, we find the elasticity of Canadian goods exports to gross ODA was 0.063% and statistically significant (at 0.01). The elasticity of exports to net ODA was 0.072% and statistically significant (at 0.01).

The average return over the period in question on a dollar in gross ODA was $1.10 in exports. The average return on a dollar of net ODA was $1.19 in exports.

The effects suggest that, in addition to the core moral and humanitarian purpose of aid, an added benefit over time may be that the same investment has the effect of boosting Canadian exports to aid recipient countries.

We reiterate that the main purpose of foreign aid is and should be poverty reduction. Our aim via this analysis is in no way to rehash old “tied aid” debates. Canadian ODA is largely untied and this is as it should be. Our empirical findings point to an effect that is additional and complementary to the core moral and humanitarian imperative that is and should continue to be the main driver behind Canada’s foreign aid.

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