Development aid and services export diversification

The relationship between development aid and services export diversification is at the heart of this study. The analysis covers 104 countries over the period 1985–2014, and shows that total development aid flows are positively associated with services export diversification in the recipient-countries. In particular least developed countries (LDCs) enjoy a higher positive effect of development aid on services export diversification than the set of other countries in the full sample do. Additionally, the effect of development on services export diversification takes place through several channels, including the real exchange rate, merchandise exports, foreign direct investment inflows, and education. These findings have important policy implications.