The Relationship between Agriculture ODA and Trade

Abstract

Developing countries development of their agricultural sector is closely related to the development of their economical growth, which in turn reduces poverty. Accordingly, ODA will assist in the investment in developing countries' agricultural sector, which will result in an increase of agricultural trade. Most research focus on the productivity of agriculture, trade, or economic growth related to agriculture. There is a need to examine the role of aid in agriculture. This paper examines the relationship between agriculture ODA, and exports and imports. It also aims to explore the impact of agriculture ODA on agricultural export diversification and import diversification. The two step least square with fixed effects is applied to this study and the effectiveness of aid is considered in different income groups. The Herfindahl-Hirschman Index (HHI) is also used to see the effect of agriculture aid on export and import diversification. Overall, the results confirm that there is a positive and significant relationship between agriculture aid and trade. They also show that agriculture ODA helps agricultural export concentration in developing countries. The findings suggest that more assistance in the agricultural sector will lead to higher agricultural trade flows.