Can Foreign Aid Accelerate Stabilization?

Alessandra Casella and Barry Eichengreen

No 294848, Institute for Policy Reform Working Paper Series from Institute for Policy Reform

Abstract: This paper studies the effect of foreign aid on economic stabilization. Following Alesina and Drazen (1991), we model ,the delay in stabilizing as the result of a distributional struggle: reforms are postponed because they are costly and each distributional faction • hopes to reduce its share of the cost by outlasting its opponents in obstructing the required policies. Since the delay is used to signal each faction's strength, the effect of the transfer depends on the role it plays in the release of information. We show that this role depends on the timing of the transfer: foreign aid decided and transferred sufficiently early in the game leads to earlier stabilization; but aid decided or transferred too late is • destabilizing and encourages further postponement of reforms.

Keywords: International Relations/Trade; Research Methods/Statistical Methods (search for similar items in EconPapers)
Pages: 37
Date: 1994-03
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Related works:
Journal Article: Can Foreign Aid Accelerate Stabilisation? (1996)
Working Paper: Can Foreign Aid Accelerate Stabilization? (1994)
Working Paper: Can Foreign Aid Accelerate Stabilization? (1994)
Working Paper: Can Foreign Aid Accelerate Stabilization? (1994)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:iprwps:294848

DOI: 10.22004/ag.econ.294848

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