Abstract

ABSTRACTThis paper explores the evolving trade effect of foreign aid using data from European countries from 1962 to 2020 in the context of multidonor competition. Our varying‐coefficient panel shows a significant country‐ and time‐heterogeneous trade effect of European donors' aid; however, aid competition can produce a mix of trade promotion and inhibitory effects. Estimations of aid's evolving trade effect reveal that donors' aid scale and (export) industrial concentration have a positive effect on promoting the trade–aid relationship with aid scale showing a reverse U‐shaped effect; the share of Aid for Trade (AfT) exerts a negative effect, and the donor's trade deficit demonstrates a positive impact on aid–trade effect.

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