This paper provides a theoretical and empirical overview of the relationships among
trade, aid and FDI, both in terms of policy interactions and interactions among resource flows.
Aid flows from one country to another can have positive or negative effects on trade flows
between those countries. These effects, in turn, may act at two different levels. There are
macro-level links between aid and trade: aid enhances saving, permitting more imports, or aid
raises the real exchange rate, depressing exports. There are also micro-level mechanisms: tied aid
may increase exports if it is spent on enhancing trade capacity, but other forms of tied aid merely
lead to allocative inefficiency. Aid flows can affect trade policy in the developing country that...
