Foreign Aid and Domestic Absorption

Jonathan Temple and Nicolas Van de Sijpe

No 10211, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We introduce a new `supply-push' instrument for foreign aid, to be used together with an instrumental variable estimator that filters out unobserved common factors. We use this instrument to study the effects of aid on macroeconomic ratios, and especially the ratios of consumption, investment, imports and exports to GDP. We cannot reject the hypothesis that aid is fully absorbed rather than used to build foreign reserves or exiting as capital flight, nor do we find evidence of Dutch Disease effects. Aid leads to higher consumption, while the evidence that it promotes investment is less robust.

Keywords: Absorption; Dutch disease; Foreign aid (search for similar items in EconPapers)
JEL-codes: F35 (search for similar items in EconPapers)
Date: 2014-10
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Citations: View citations in EconPapers (18)

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Related works:
Journal Article: Foreign aid and domestic absorption (2017)
Working Paper: Foreign Aid and Domestic Absorption (2015)
Working Paper: Foreign Aid and Domestic Absorption (2014)
Working Paper: Foreign Aid and Domestic Absorption (2014)
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