Does German development aid promote German exports and German employment? A sectoral-level analysis

This paper uses an augmented gravity model of trade to investigate the link between German development aid and sectoral exports from Germany to the aid recipient countries. The findings indicate that in the long run each dollar of German aid is associated with an average increase of 0.83 US dollars of German exports of goods. The effect varies by sector and the sectors that gain the most are machinery, electrical equipment and transport equipment. By using German input-output tables and according to our estimates, the aid-induced gains in exports generate a total employment effect of about 216,000 jobs of which 52,000 jobs are created in machinery, 20,000 in transport equipment, 24,000 in electrical equipment, 23,000 in basic metals, 10,000 in food, beverages and tobacco and 78,000 in business-related services.