Economics at your fingertips  

Aid and exchange rates in sub-Saharan Africa: No more Dutch Disease?

Oliver Morrissey, Lionel Roger and Lars Spreng

No 2019-07, Discussion Papers from University of Nottingham, CREDIT

Abstract: Given the significant inflows of foreign aid to sub-Saharan Africa (SSA) the possibility of Dutch Disease has been a concern. Most macroeconomic models predict that aid inflows, especially if large and/or unanticipated (shocks), will lead to an appreciation of the real exchange rate and undermine the competitiveness of the economy. Empirical evidence is inconclusive, but a common presumption is that aid has been associated with Dutch Disease effects in SSA. Previous empirical studies rely on annual data and few include data since themid-2000s. This paper focuses on themore recent period employing monthly time series data for ten countries over 2001 to 2017 to estimate a structural VAR. For the majority of countries aid has no or a minimal effect on the real exchange rate; there is evidence of a significant real appreciation in only two countries. Additional analysis shows that commodity export prices are a more important determinant of the real exchange rate, with an effect on average twice that of aid. The paper conjectures that the absence of a Dutch Disease effect since the 2000s is due to a declining level of aid inflows and improved macroeconomic management.

Keywords: Foreign Aid; Exchange Rates; Dutch Disease; sub-Saharan Africa (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-dev and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Discussion Papers from University of Nottingham, CREDIT School of Economics University of Nottingham University Park Nottingham NG7 2RD. Contact information at EDIRC.
Bibliographic data for series maintained by Hilary Hughes ().

Page updated 2020-08-08
Handle: RePEc:not:notcre:19/07