Javed Younas

Date of Graduation

2007

Document Type

Thesis

Abstract

Essay 1: Motivation for bilateral aid allocation: Altruism or trade benefits. This paper argues that bilateral aid from developed OECD countries is disproportionately allocated to recipient nations who have a greater tendency to import goods in which donor nations have a comparative advantage in production. The estimates indicate that a substantially larger amount of aid per capita is provided to recipients who import capital goods, while imports by other category groups have no significant effects. Given that developed donor nations are major producers and exporters of capital goods, this result at least partially supports their trade benefits motive. On the other hand, aid may also be given as a reward to the recipient nations for promoting imports of capital goods and removing trade restrictions. The findings also suggest that donors are more concerned about alleviating physical miseries (infant mortality) and rewarding good human rights conditions, however, they seem to be less focused on reducing economic hardships (low income per capita). Moreover, political and strategic considerations of donors continue to be the major determinants of aid allocation even in the Post Cold War era. Essay 2: Does institutional quality matter for investment and capital mobility? Evidence from sub-Saharan Africa. Using an augmented Feldstein-Horioka specification, this paper examines the role of institutional quality for investment and capital mobility in sub-Saharan Africa. The empirical model employs various aspects of institutional quality to find their differential effects on investment. The empirical estimates suggest that improvement in institutional quality can play a substantially larger role for increasing investment in the region. Moreover, the savings-retention coefficient remains positive, significant and stable across all models specifications, which indicates that investment is not completely uncorrelated with the domestic savings. Trade openness also has a significant and positive impact on investment. However, foreign aid appears to be less effective in supporting investment when institutions are controlled for in the empirical model. Essay 3: Do donors care about declining trade revenue from liberalization? An analysis of aid allocation. (with Subhayu Bandyopadhyay ). 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 multilateral aid. Multilateral donors are more focused on income per capita and may be using it as a de facto measure of average living standards in the recipient nations.

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