Foreign Aid Reduces Labor Supply and Capital Accumulation

Liutang Gong and Heng-Fu Zou ()

No 56, CEMA Working Papers from China Economics and Management Academy, Central University of Finance and Economics

Abstract: In an optimal growth model with foreign aid, foreign borrowing, and endogenous leisure-and-consumption choices, it is shown that a permanent rise in foreign aid reduces long-run capital accumulation and labor supply, increases long-run consumption, and has no effect on long-run foreign borrowing.

Date: 2001
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Published in Review of Development Economics, Volume 5, Issue 1, pages 105¨C118, February 2001

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