Loans versus Grants in Japanese
Bilateral ODA - Evidence from Panel
Data
Tomohito Hata

Research Question• Does the grant-loan ratio in Japanese bilateral
ODA account for the economic/political
relationship with the recipient as well as therecipients’ characteristics?
• If so, what is the determinant for the
proportion of grants, in terms of the recipientscharacteristics?

Former Studies• Many researchers discuss the allocation of aid,
but there are few researches that study (1) theallocation of grants versus loans, (2) thedeterminants from the perspective recipients’characteristics• For the grant-loan argument, Odedokun (2003)
examines the determinants of the ratio of grants
out of total ODA, focusing on donors’
characteristics.
• Schudel (2008) studies the relationship between
corruptions and aid allocations.

variable

description

N

mean

sdmin

max

1 lgrantsratiolog(grants/total ODA)

999 -0.392

0.808 -4.52

2 lgrants_gdp
3 debtpolicylog(grants/GDP per capita)"CPIA debt policy rating (1=low to 6=high)"

953 -20.233
533 3.462

2.236 -27.97 -14.52
0.909
16533

0.709

macromanagemen "CPIA macroeconomic management rating (1=low to
4 t6=high)""CPIA transparency, accountability, andcorruption in the public sector rating (1=low5 transparency to 6=high)"
6 caccountCurrent account balance (% of GDP)
7 caccountsqrd caccount^2
8 ldebt"Total debt service (% of GNI) in logarithm"
9 ltrade"Trade (% of GDP) in logarithm"
10 lmilitaryex"Military expenditure (% of GDP) in logarithm"
11 fdi_gdp
FDI from Japan (10000% of GDP)
12 fdisqrd
fdi_gdp^213 gdp_gr"GDP growth (annual %)"14 lgdplog(GDP per capita)
15 asia
Asia dummy
16 dac_1
Least developed countries
17 dac_2
Other low income countries
18 dac_3
Lower middle income countries
19 dac_4
Upper middle income countries
20 polconiii
Political Constraints
21 pr
Political rights index by Freedom House
22 polity
Democracy index by polity IV

3.701

105.5

533 2.878 0.668
14.51089 -3.274 12.342-51 48.2
1089 162.904 327.322
0 2601875 0.945 1.071 -3.49 4.91
1208 4.447
0.47
3.1 6.13
976 0.513 0.691 -3.07 2.47
5400.12 1.418 -7.85 19.42
540 2.022 24.34
0 376.991320 4.255 4.767-18 34.51334 23.83
2.42 16.9 30.34
1641 0.229
0.42
011641 0.224 0.417
011641 0.029 0.167
011641
0.18 0.385
011641 0.241 0.428
011446 0.272 0.195
0 0.711544 3.351 2.144
171116 0.968 15.855-88
10

Hypothesis• Heavy external debts reduce the loans because it
raises the risk of not repaying loans• GDP per capita and GDP growth rate: relatively
richer countries would receive more loans• Policy quality: better policy quality (goodgovernance) would increase loans• Economic ties with Japan (measured by FDI)
would increase grants and aid volume• Asian countries have traditionally receive more
ODA from Japan, but how about grant-loan ratio?

Model• Panel-data random-effects (RE) model andfixed-effects (FE) model are used
• Dependent variable: rate of grants out of total
ODA amount, the amounts of grants→comparing the two dependent variables, wecan see if the independent variable have thesame effects in terms of ratio and volume• To maintain the number of observations, twosets of independent variables are tested

Results• Heavy external debts and poorer policy quality
against debts actually reduce the grants• Better macroeconomic management (and tosome extent transparency) fosters loans• Economic tie with Japan had little effect after
controlling for policy quality• More GDP per capita would reduce grants, asexpected• Asian countries are likely to receive more loans,and they receive larger amount of grants as well