Aid, disbursement delays, and the real exchange rate

Alexandra Jarotschkin and Aart Kraay ()

No 6501, Policy Research Working Paper Series from The World Bank

Abstract: Aid donors and recipients have long been concerned that aid inflows may lead to an appreciation of the real exchange rate and an associated loss of competitiveness. This paper provides new evidence of the dynamic effects of aid on the real exchange rate, using an identification strategy that exploits the long delays between the approval of aid projects and the subsequent disbursements on them. These disbursement delays enable the isolation of a source of variation in aid inflows that is uncorrelated with contemporaneous macroeconomic shocks that may drive both aid and the real exchange rate. Using this predetermined component of aid as an instrument, there is little evidence that aid inflows lead to significant real exchange rate appreciations.

Keywords: Macroeconomic Management; Debt Markets; Economic Stabilization; Emerging Markets; Economic Theory&Research (search for similar items in EconPapers)
Date: 2013-06-01
New Economics Papers: this item is included in nep-dev, nep-mac and nep-ppm
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Citations: View citations in EconPapers (6)

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Journal Article: Aid, Disbursement Delays, and the Real Exchange Rate (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:6501

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