 The dynamic implications of foreign aid and its variabilityCristina Arellano, Ales Bulir, Timothy Lane and Leslie Lipschitz Journal of Development Economics, 2009, vol. 88, issue 1, 87-102 Abstract: The paper examines the effects of aid and its volatility on consumption, investment, and the structure of production in the context of an intertemporal two-sector general equilibrium model, calibrated using data for aid-dependent countries in Africa. A permanent flow of aid mainly finances consumption rather than investment--consistent with the historical failure of aid inflows to translate into sustained growth. Large aid flows are associated with higher real exchange rates and smaller tradable sectors because aid is a substitute for tradable consumption. Aid volatility results in substantial welfare losses, providing a motivation for recent discussions of aid architecture stressing the need for greater predictability of aid. These results are also consistent with evidence from cross-country regressions of manufactured exports, presented later in the paper. Keywords: C68; F35; F41; Real; business; cycle; General; equilibrium; Aid; Transfer; problem (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:88:y:2009:i:1:p:87-102 Access Statistics for this article Journal of Development Economics is currently edited by M. R. Rosenzweig More articles in Journal of Development Economics from Elsevier |
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