Foreign Aid and Fiscal Policy in a Small-Open Economy with a Non-Market Sector
Naiyue Cui and
Foreign Trade Review, 2023, vol. 58, issue 1, 144-175
This study examines the macroeconomic effects of foreign aid and fiscal policy by employing a multi-sector growth model. Foreign aid may decrease the recipient countryâ€™s market activities by lowering its capital accumulation and shifting market labour and capital to the non-market sector. This market activity shifting can improve the recipient countryâ€™s foreign asset/debt position where real exchange rate plays a role. We examine fiscal policiesâ€™ long- and short-run impacts and the recipient countryâ€™s administration efficiency in handling aid. Efficiency improvements in the recipient countryâ€™s governance of foreign aid can lower its real exchange rate, thereby contribute to improving foreign asset/debt holdings. Although administration costs in foreign aid may cause losses, by raising both market and non-market goods consumption, foreign aid improves the welfare of the recipient country. Our numerical analysis demonstrates the comparative statics and comparative dynamics impacts of several fiscal policy experiments. We illustrate that capital and labour incomeâ€™s taxation effects can be very different.
Keywords: Foreign aid; fiscal policy; non-market sector; administration efficiency (search for similar items in EconPapers)
References: Add references at CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:sae:fortra:v:58:y:2023:i:1:p:144-175
Access Statistics for this article
More articles in Foreign Trade Review
Bibliographic data for series maintained by SAGE Publications ().