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Foreign aid and domestic absorption

Jonathan Temple and Nicolas Van de Sijpe ()

Journal of International Economics, 2017, vol. 108, issue C, 431-443

Abstract: This paper introduces 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: Foreign aid; Absorption; Dutch Disease; Common correlated effects (search for similar items in EconPapers)
JEL-codes: F35 (search for similar items in EconPapers)
Date: 2017
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Related works:
Working Paper: Foreign Aid and Domestic Absorption (2015) Downloads
Working Paper: Foreign Aid and Domestic Absorption (2014) Downloads
Working Paper: Foreign Aid and Domestic Absorption (2014) Downloads
Working Paper: Foreign Aid and Domestic Absorption (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:108:y:2017:i:c:p:431-443

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