In addition to its primary purpose of reducing global poverty, UK aid spending in developing countries results in benefits for the UK, with thousands of new jobs created due to a boost in exports, researchers at the Overseas Development Institute (ODI) have found.
New analysis by economists at the UK’s leading think-tank on international development has calculated that every £1 of direct bilateral aid leads to a £0.22 increase in UK exports.
In 2014, £3.7 billion ($5.9 billion) in UK direct bilateral aid increased UK exports by almost £810 million ($1.3bn). This in turn created up to 12,000 jobs in the UK.
Experts looked at the official OECD aid data of all EU countries and singled out its effect on trade by controlling for all other factors influencing the value of exports from donor to recipient countries.
They found aid increases exports in donor countries by raising productivity and income and reducing trade costs in recipient countries, resulting in an increase in demand for imports.
The paper suggests that, without any sort of tying of aid, recipient countries are more likely to import from donor countries due to the links aid has created between the countries.
Researchers were then able to calculate the amount of jobs created by the aid-generated exports. They found almost half (48%) of the 12,000 jobs created in the UK was among middle-skilled workers, with 24% among low-skilled workers.
The highest number of jobs were created in the transport equipment sector, with business services and electrical and optical equipment the second and third highest.
Author Maximiliano Mendez-Parra, Senior Research Fellow at ODI, said: ‘While the objective of aid first and foremost is to reduce global poverty and promote development, our analysis suggests the UK also benefits directly from the aid it provides directly to poor countries.
‘As we think about the UK’s role in the world post-Brexit, this research shows that playing our part in the world and keeping our promises to the world’s poorest is not just morally correct, but also benefits us at home too.’
Notes to editors
- The briefing note ‘Aid, exports and employment in the UK’, is due to be published on Thursday, May 18
- Aid can increase the recipient country’s demand for goods and services from other countries, including donor countries. Some aid interventions also lead to lower trade costs, making imports in the recipient country more competitive. These effects benefit all exporters. Other factors can also increase exports from the specific donor, such as ‘goodwill’ towards donor exports and the donor country’s presence in the recipient country.
- Using standard economic techniques, researchers estimated the effect of direct bilateral aid provided directly by the UK on exports from the UK. The analysis controlled for the influence of other factors, such as the recipients’ gross domestic product; tariffs applied and the existence of free trade agreements.
- The analysis found that for every £1 of direct bilateral aid the UK exported an additional £0.22 worth in goods to recipient countries. Using official OECD figures for UK direct bilateral aid for 2014, this amounted to almost £1.3bn of additional export of goods
- Experts then calculated the effect of the increased UK output in terms of labour. According to this calculation of the input-output relationship, exports generated by means of direct bilateral UK aid generated almost 12,000 jobs in the UK in 2014
- GBP figures calculated using the 2014 average exchange rate reported by the Bank of England – USD1.6045 to 1GBP
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