Benefits for both recipient and donor countries

Especially in times of tight public budgets, many people are wondering whether development co-operation also benefits the donor country – for example, in the form of increased trade and higher exports. Research has now established this link relatively well, although the results vary depending on the period under investigation, the design of the measures and the respective trade structures. A new study by the University Göttingen/Germany addresses this topic andexamines how bilateral development cooperation between donor and recipient countries affects the export sector of these donor countries.

The analysis is based on a widely used model from trade research (the “gravity model”). It covers a period from 2005 to 2024 for several European donor countries. The period thus encompasses different development cooperation priorities and trade patterns – including a phase in which several development cooperation recipients became important trading partners. The analysis includes both goods exports and, for the first time, exports of services, meaning that the scope of the analysis is broader than in many earlier studies.

Boosting exports, safeguarding jobs

The study’s findings show that development cooperation has a measurable and economically significant effect on the exports of donor countries. Translated into a concrete figure, this means that one euro of development co-operation invested by, for example, Germany in partner countries increases German exports of goods and services by an average of 2.50 euros in the medium to long term. The resulting benefits are enough to  create and secure around 380,000 jobs in companies in Germany.

However, the study focuses on purely bilateral development cooperation between donor and recipient countries, which means that the effect cannot be applied across the board to every development cooperation project.

Indirect mechanisms also effective

The cause of this effect appears to lie not only in direct trade channels (e.g. “Aid for Trade”), but also in indirect mechanisms. These include factors such as the building of mutual trust, lower information barriers between partners, or increased import demand in partner countries resulting from development progress.

Varying effects across countries and sectors

Although the overall impact is positive, it is clear that the individual effects are not equally strong everywhere. They vary according to donor and recipient countries, according to economic sectors, and also according to which groups of countries are the focus of attention. This correlation is particularly clear in the case of larger emerging economies; for poorer recipient countries, the effects tend to be significantly smaller, partly because their import volumes are typically lower.

Overall, the study shows that development cooperation not only supports long-term social development in partner countries but also generates measurable economic benefits in donor countries.

(KfW/sri)