Determinants of Korea’s Official Development Assistance (ODA) Allocation Doo Won Lee Kyu Won Kim Hyun Seok Shim January 9 th 2009 School of Economics Yonsei University

Contents I. Introduction I. Introduction II. The Status and Characteristics of Korea's Foreign Aid II. 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 ODA III. Analysis of Determinants of Korean ODA i. Analysis model and data i. Analysis model and data ii. Discussion of Results ii. Discussion of Results IV. Summary and Conclusion IV. Summary and Conclusion

I. Introduction I. Introduction □ What is ODA? Official Development Assistance Official Development Assistance □ ODA as an important tool for strategic foreign economic policy : Approaching ODA not only from its humanitarian aid purposes Approaching ODA not only from its humanitarian aid purposes but also from the national interests of the donor country but also from the national interests of the donor country □ An example of ODA being used towards national interest ChinaJapanKorea “Resource Diplomacy” Through ODA support and economic cooperation across resource-rich countries, China is gaining a competitive advantage in the struggle for energy resources. Most of Japanese foreign aid is in the form of conditional loan, mostly aimed at assisting Japanese corporate activity overseas. Humanitarian aid such as food support and emergency aid only constitute 0.2~0.5%. “Comprehensive Package” type of foreign aid, including but not limited to: building plants for energy resource extraction and production in countries receiving aid, building social infrastructure, and increasing trade and investment between the countries.

I. Introduction I. Introduction □ Purpose ∙To analyze in what ways and how much Korea's ODA is helping to ∙ To 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 to national interest of Korea. national interest of Korea. □ How 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 the economic cooperation with the countries receiving aid and the allocation of Korea's ODA. allocation of Korea's ODA. □ Main Results ∙ Korea's ODAmost significantly affected by the amount of exports ∙ Korea's ODA most 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 determining ∙ Energy 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, II. i. The Evolution and Current Status of Korea's Foreign Aid II. 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 Aid II. 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 Aid II. i. The Evolution and Current Status of Korea's Foreign Aid (units: US $ mn, %)

Source: OECD Databases( 2008). II. i. The Evolution and Current Status of Korea's Foreign Aid II. i. The Evolution and Current Status of Korea's Foreign Aid

Source: OECD Databases( 2008). II. i. The Evolution and Current Status of Korea's Foreign Aid II. i. The Evolution and Current Status of Korea's Foreign Aid

Source: Export-Import Bank of Korea( 2008). II. i. The Evolution and Current Status of Korea's Foreign Aid II. i. The Evolution and Current Status of Korea's Foreign Aid

Source: Export-Import Bank of Korea( 2008). II. i. The Evolution and Current Status of Korea's Foreign Aid II. i. The Evolution and Current Status of Korea's Foreign Aid

Source: KOICA( 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 data III. i. Analysis model and data □ The scope of analysis includes top 80 recipients of Korea's ODA from 1991 to to □ The 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 Results III. ii. Discussion of Results

IV. Summary and Conclusion IV. Summary and Conclusion □ Korea’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 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 with ODA in the Asian region. ODA in the Asian region. □ 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.