US Disaster Aid and Bilateral Trade Growth

Abstract

Previous research demonstrates that the decision to issue international disaster aid depends in part on the political relationship between donor and recipient countries. However, the reverse case—the impact of disaster aid on subsequent relationships—remains largely unexamined. In this paper, I argue that disaster aid promotes reconstruction, reduces investors’ risk perception, and improves disaster victims’ perceptions of the donor state. Together, these factors suggest a subsequent increase in trade between donors and disaster victims. I use error correction models (ECMs) to assess the short- and long-term influence of US disaster aid on trade growth over the 1973–2008 period. My results suggest that an increase in disaster aid often leads to a subsequent increase in bilateral trade considerably larger than the initial aid commitment. I also find, controlling for other determinants of disaster aid, that preexisting trade with the United States is not associated with a victim’s likelihood of receiving US aid. My findings are important for policymakers, suggesting the presence of a material incentive to complement humanitarian imperatives to grant disaster assistance.