On the Potential of Foreign Aid as Insurance

Stephane Pallage, Michel Robe () and Catherine Bérubé

Cahiers de recherche from CIRPEE

Abstract: In this paper, we argue that it would be fruitful to revisit foreign aid's potential as an insurance mechanism against macroeconomic shocks. In a simple model of aid flows between two endowment economies, we show that at least three fourths of the large welfare costs of macroeconomic fluctuations in poor countries could be alleviated by a simple reallocation of aid flows across time.

Keywords: Foreign aid; Consumption smoothing; Macroeconomic fluctuations; Welfare (search for similar items in EconPapers)
JEL-codes: F35 E32 E60 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-ias
Date: Written 2004
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