Determinants of Korea’sDeterminants of Korea’sOfficial Development Assistance (ODA)Official Development Assistance (ODA)

AllocationAllocation

Doo Won Lee Kyu Won Kim Hyun Seok ShimDoo Won Lee Kyu Won Kim Hyun Seok Shim

January 9January 9thth 2009 2009

School of EconomicsSchool of EconomicsYonsei UniversityYonsei University

ContentsContents

I. IntroductionI. Introduction

II. The Status and Characteristics of Korea's Foreign AidII. The Status and Characteristics of Korea's Foreign Aid

i. The Evolution and Current Status of Korea's Foreign Aid i. The Evolution and Current Status of Korea's Foreign Aid

ii. Literature Review on Determinants of Development Aid ii. Literature Review on Determinants of Development Aid

III. Analysis of Determinants of Korean ODAIII. Analysis of Determinants of Korean ODA

i. Analysis model and data i. Analysis model and data

ii. Discussion of Resultsii. Discussion of Results

IV. Summary and ConclusionIV. Summary and Conclusion

I. IntroductionI. Introduction

□ □ What is ODA?What is ODA?

Official Development AssistanceOfficial Development Assistance

□ □ ODA as an important tool for strategic foreign economic policy :ODA as an important tool for strategic foreign economic policy : Approaching ODA not only from its humanitarian aid purposesApproaching ODA not only from its humanitarian aid purposes but also from the national interests of the donor countrybut also from the national interests of the donor country

□ □ An example of ODA being used towards national interestAn example of ODA being used towards national interest

ChinaChina JapanJapan KoreaKorea

““Resource Diplomacy”Resource Diplomacy”

Through ODA support and Through ODA support and economic cooperation across economic cooperation across resource-rich countries, resource-rich countries, China is gaining a China is gaining a competitive advantage in the competitive advantage in the struggle for energy struggle for energy resources.resources.

Most of Japanese foreign aid Most of Japanese foreign aid is in the form of conditional is in the form of conditional loan, mostly aimed at loan, mostly aimed at assisting Japanese corporate assisting Japanese corporate activity overseas.activity overseas.

Humanitarian aid such as food support and emergency aid only constitute 0.2~0.5%.

““Comprehensive Package” Comprehensive Package” type of foreign aid, including type of foreign aid, including but not limited to: building but not limited to: building plants for energy resource plants for energy resource extraction and production in extraction and production in countries receiving aid, countries receiving aid, building social building social infrastructure, and increasing infrastructure, and increasing trade and investment trade and investment between the countries.between the countries.

I. IntroductionI. Introduction

□ □ PurposePurpose

∙∙ To analyze in what ways and how much Korea's ODA is helping toTo analyze in what ways and how much Korea's ODA is helping to

accommodate Korean national interests.accommodate Korean national interests.

∙ ∙ To assess how effective Korean foreign aid was with respect toTo assess how effective Korean foreign aid was with respect to national interest of Korea.national interest of Korea.

□ □ How to AnalyzeHow to Analyze

∙ ∙ Econometric model to analyze the relationship between the level of Econometric model to analyze the relationship between the level of

economic cooperation with the countries receiving aid and theeconomic cooperation with the countries receiving aid and the

allocation of Korea's ODA.allocation of Korea's ODA.

□ □ Main ResultsMain Results

∙ ∙ Korea's ODAKorea's ODA most significantly affected by the amount of exportsmost significantly affected by the amount of exports

from Korea to the recipient country.from Korea to the recipient country.

∙ ∙ Energy production has not been a significant factor in determiningEnergy production has not been a significant factor in determining

ODA.ODA.

Source: Int'l Economic Affairs Bureau, Ministry of Strategy and Finance of the Korean Gov't, April 4, 2008.

II. i. The Evolution and Current Status of Korea's Foreign AidII. i. The Evolution and Current Status of Korea's Foreign Aid

(units: US $ mn, %)

Note: GNI is assumed to grow at 5.0%/year, ODA/GNI is assumed to increase at 0.026%/year.

II. i. The Evolution and Current Status of Korea's Foreign AidII. i. The Evolution and Current Status of Korea's Foreign Aid

(units: US $ mn, %)

Source: Export-Import Bank of Korea, Ministry of Strategy and Finance of the Korean Gov't.

II. i. The Evolution and Current Status of Korea's Foreign AidII. i. The Evolution and Current Status of Korea's Foreign Aid

(units: US $ mn, %)

Source: OECD Databases(http://www.oecd.org, 2008).

II. i. The Evolution and Current Status of Korea's Foreign AidII. i. The Evolution and Current Status of Korea's Foreign Aid

Source: OECD Databases(http://www.oecd.org, 2008).

II. i. The Evolution and Current Status of Korea's Foreign AidII. i. The Evolution and Current Status of Korea's Foreign Aid

Source: Export-Import Bank of Korea(http://www.koreaexim.go.kr, 2008).

II. i. The Evolution and Current Status of Korea's Foreign AidII. i. The Evolution and Current Status of Korea's Foreign Aid

Source: Export-Import Bank of Korea(http://www.koreaexim.go.kr, 2008).

II. i. The Evolution and Current Status of Korea's Foreign AidII. i. The Evolution and Current Status of Korea's Foreign Aid

Source: KOICA(http://www.koica.go.kr, 2008).

II. ii. Literature Review on Determinants of Development Aid II. ii. Literature Review on Determinants of Development Aid

Source: Cooray and Shahiduzzaman(2004), Lee(in Korean, 2005), Lho(in Korean, 2008).

II. ii. Literature Review on Determinants of Development Aid II. ii. Literature Review on Determinants of Development Aid

III. i. Analysis model and dataIII. i. Analysis model and data

□□ The scope of analysis includes top 80 recipients of Korea's ODA The scope of analysis includes top 80 recipients of Korea's ODA fromfrom

1991 to 2005.1991 to 2005.

□□ The model uses cross-section data, so panel data analysis is usedThe model uses cross-section data, so panel data analysis is used

instead of ordinary least squares analysis.instead of ordinary least squares analysis.

III. ii. Discussion of ResultsIII. ii. Discussion of Results

III. ii. Discussion of ResultsIII. ii. Discussion of Results

III. ii. Discussion of ResultsIII. ii. Discussion of Results

III. ii. Discussion of ResultsIII. ii. Discussion of Results

IV. Summary and ConclusionIV. Summary and Conclusion

□ □ Korea’s ODA is most significantly affected by the amount of exportsKorea’s ODA is most significantly affected by the amount of exports

from Korea to the recipient country.from Korea to the recipient country.

□ □ After the foreign currency crisis was resolved in 1999, the amount ofAfter the foreign currency crisis was resolved in 1999, the amount of

FDI and loans shows a clear positive correlation.FDI and loans shows a clear positive correlation.

□ □ The amount of exports and FDI are more clearly correlated withThe amount of exports and FDI are more clearly correlated with

ODA in the Asian region.ODA in the Asian region.

□ □ Energy production has not been a significant factor in determining Energy production has not been a significant factor in determining

ODA, which stands in contrast to Japan's example.ODA, which stands in contrast to Japan's example.