Aid, non-traded goods, and growth

Takumi Naito

Canadian Journal of Economics, 2010, vol. 43, issue 2, 423-439

Abstract: We examine the effects of foreign aid in a small recipient country with two traded goods, one non-traded good, and two factors. Learning by doing and intersectoral knowledge spillovers contribute to endogenous growth. We obtain two main results. First, a permanent increase in untied aid raises (or lowers) the growth rate if and only if the non-traded good is more capital intensive (or effective labour intensive) than the operating traded good. Second, a permanent increase in untied aid raises welfare if the non-traded good is more capital intensive than the operating traded good; otherwise, it may raise or lower welfare.

JEL-codes: F43 O41 (search for similar items in EconPapers)
Date: 2010
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