The Nature of Aid and Trade Relationship of Korea: Causality Test Using Dynamic Panel Data Model

Abstract

, , , , This paper investigates the commonly made assertion that aid creates trade and that the link between aid and trade exists. It examines the nature of this linkage: whether aid creates trade, trade creates aid, or a bi-directional link exists for DAC member Korea. The study provides a theoretical and empirical overview of the relationship between aid and trade. Data on aid and trade flows for Korea and its bilateral aid recipients of 180 countries is from 1987 to 2010. Two different models are used: a gravity model and a bivariate Granger Causality test using panel data. The gravity model result suggest a bi-directional linkage between aid and trade whereas Granger causality test indicated only a one-way causality from trade to aid for Korean aid-trade relationship. When grouped into 10 regional blocs, the direction of causality differed across regions. There is a bidirectional relationship between aid and trade for Northern Saharan, South American and Southeast Asian regions. For other regions such as Central America, Eastern Europe, Central Asia and Oceania, the relationship either runs from aid to trade (Central America and Oceania) or aid to trade (Eastern Europe and Central Asia). For Southern Saharan Africa, Middle East and East Asia, there was no causality link between aid and trade. The tendency in the causality direction between aid and trade is that a bi-directional link between aid and trade was viewed in regions where there already are pre-established strong trade links and resources that are essentials to developing the donor's export commodities. For aid to trade causality, regions rich of agriculture such as Central America and Oceania demonstrated this link. Trade to aid relationships are shown in natural resource abundant regions, crude oil and energy in particular. For Southern Saharan Africa and Middle East, there was no causality link between aid and trade. This might be due to the political instability and political pressure to give assistance to these regions. East Asia also shows no causality but for different reason. The number of countries included in the East Asian group was relatively smaller than other groups and also the factor endowment in the group differed greatly. As there were no similar factor endowments across the region, the data could not provide much result.

본 논문은 원조가 무역을 창출한다는 일반적인 주장과 더불어 원조와 무역 간 상관관계의 존재에 대하여 조사하고자 한다. 특히, 원조를 통한 무역의 창출, 무역을 통한 원조의 창출, 또는 양방향성 관계의 존재 여부에 대한 관찰을 통해 DAC 회원국인 한국의 원조와 무역 간 상관관계의 특성을 살펴보고자 한다. 본 논문에서는 원조와 무역 간의 관계에 대하여 이론적이고 실증적인 개요를 제공한다. 한국과 180여 양자원조 수혜대상국 간의 원조 및 무역 동향에 대한 데이터는 1987에서 2010년까지의 자료를 바탕으로 한다. 방법론적으로는 중력 모형과 패널 데이터를 사용한 이변량 그랜저 인과관계 분석법이라는 두 가지 모델이 적용되었다. 한국의 원조-무역 상관관계에 있어서 중력 모형은 양방향성 관계를 제시하는 한편 그랜저 인과관계 분석법은 무역에서 원조로 이어지는 일방향성 관계를 나타낸다.