The effect of aid and state visits on trade

Abstract

This paper investigates the effect of aid on trade for twelve European countries and the effect of state visits on trade for four European countries. The theoretical foundation for the analysis is the gravity model of trade. The results show a robust statistically significant effect of aid on trade for France and in some of the robustness tests significant effects of aid on exports for Germany, Spain, United Kingdom and the twelve countries combined. No effects of state visits on trade are found. The causal relationships between aid and trade and state visits and trade are investigated with Granger causality tests. The causality between aid and trade goes in different ways dependent on whether the twelve countries are tested together or individually. No causality is found between state visits and trade.