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

Trade with Developing Countries and Development Assistance

About this Report

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.

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

by Aniket Bhushan and Fanny Siaw-Soegiarto

Published: November 2017

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.

Further Research

Descriptive analysis at the sector/product level of the composition of Canadian exports, revealed comparative advantage (RCA), and Canada’s trade promotion priorities is provided in annexes.

Based on this analysis we make the case that there are opportunities to better link trade and development strategies, both in areas of current strength (e.g. agriculture and agri-food) and especially from a forward looking perspective with regards to high-tech, high-value added and ‘sunrise’ sectors (e.g. clean technologies), in a manner that is a ‘win-win-win’ for development impact, Canada’s international priorities and future trade and investment diversification.

Exploring the above opportunities requires going beyond econometric analysis. Our strategy is to pursue the same through mixed-method case studies, which is our key next step, and will form the basis of an accompanying paper.

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

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