Abstract
This paper uses a new database on trade aid to examine the relationships among trade aid, institutional quality, and trade. Using an instrumental variable approach and a large country sample, I find that trade aid has significantly higher positive effect on trade when it is interacted with the measure of institutional quality. This result is robust to various model specifications, tackling potential endogeneity issues, and excluding outliers. This finding provides key insights on policy recommendations for policymakers and donors.
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