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The effects of EU aid on receiving and sending countries

Research report

Written by Dirk Willem te Velde

Research report

The European Union is currently discussing the European Commission’s future development aid budget as part of the Multiannual Financial Framework (MFF) over 2014-2020.

However, these negotiations have largely neglected a discussion on the economic effects of EU aid for both donor and recipient countries. This study is the first attempt to quantify such effects. The report simulates the impact of EU aid to the poorest, as channelled through the European Development Fund (EDF) and the Development Cooperation Instrument (DCI) to developing countries.

Over the seven year period 2014-2020, the European Commission proposes funding for these instruments at €30 billion, and €21 billion respectively, adding up to a total of €51 billion. The report concludes that over the 7 year period of the next EU budget, under a reasonable set of assumptions, if the €51bn investment in development aid is channelled effectively it will be completely recouped by EU taxpayers, and the effects on the ground give a clear return on investment.

In that time European and global GDP levels will receive a boost of almost 0.1 per cent and over 0.2 per cent respectively as a result of this aid, with much stronger benefits accruing to the aid recipient regions.

  • The effects of EU aid on receiving and sending countries: A modelling approach

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Dawn Holland and Dirk Willem te Velde