Advanced Search
MyIDEAS: Login

How Is Foreign Aid Spent? Evidence from a Natural Experiment

Contents:

Author Info

  • Eric Werker
  • Faisal Z. Ahmed
  • Charles Cohen
Registered author(s):

    Abstract

    We use oil price fluctuations to test the impact of transfers from wealthy OPEC nations to their poorer Muslim allies. The instrument identifies plausibly exogenous variation in foreign aid. We investigate how aid is spent by tracking its short-run effect on aggregate demand, national accounts, and balance of payments. Aid affects most components of GDP though it has no statistically identifiable impact on prices or economic growth. Much aid is consumed, primarily in the form of imported noncapital goods. Aid substitutes for domestic savings, has no effect on the financial account, and leads to unaccounted capital flight. (JEL F35, O19)

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mac.1.2.225
    Download Restriction: no

    File URL: http://www.aeaweb.org/aej/mac/data/2007-0057_data.zip
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.

    Bibliographic Info

    Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

    Volume (Year): 1 (2009)
    Issue (Month): 2 (July)
    Pages: 225-44

    as in new window
    Handle: RePEc:aea:aejmac:v:1:y:2009:i:2:p:225-44

    Note: DOI: 10.1257/mac.1.2.225
    Contact details of provider:
    Email:
    Web page: http://www.aeaweb.org/aej-macro
    More information through EDIRC

    Order Information:
    Web: http://www.aeaweb.org/subscribe.html

    Related research

    Keywords:

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Raghuram G. Rajan & Arvind Subramanian, 2005. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," NBER Working Papers 11513, National Bureau of Economic Research, Inc.
    2. Dollar, David & Alesina, Alberto, 2000. "Who Gives Foreign Aid to Whom and Why?," Scholarly Articles 4553020, Harvard University Department of Economics.
    3. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
    4. Eric Neumayer, 2003. "What Factors Determine the Allocation of Aid by Arab Countries and Multilateral Agencies?," Journal of Development Studies, Taylor & Francis Journals, vol. 39(4), pages 134-147.
    5. Pinto, Brian, 1989. "Black Market Premia, Exchange Rate Unification, and Inflation in Sub-Saharan Africa," World Bank Economic Review, World Bank Group, vol. 3(3), pages 321-38, September.
    6. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
    7. Robert C. Feenstra & Robert E. Lipsey & Haiyan Deng & Alyson C. Ma & Hengyong Mo, 2005. "World Trade Flows: 1962-2000," NBER Working Papers 11040, National Bureau of Economic Research, Inc.
    8. World Bank, 2005. "World Development Indicators 2005," World Bank Publications, The World Bank, number 12426, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Jonathan R. W. Temple & Nicolas Van de Sijpe, 2014. "Foreign Aid and Domestic Absorption," CSAE Working Paper Series 2014-01, Centre for the Study of African Economies, University of Oxford.
    2. Berrittella, Maria & Zhang, Jian, 2012. "A global perspective on effectiveness of aid for trade," Policy Research Working Paper Series 6126, The World Bank.
    3. Patrick Carter, 2012. "Aid Allocation Rules," Bristol Economics Discussion Papers 12/630, Department of Economics, University of Bristol, UK.
    4. Mattoo, Aaditya & Subramanian, Arvind & van der Mensbrugghe, Dominique & He, Jianwu, 2009. "Can global de-carbonization inhibit developing country industrialization ?," Policy Research Working Paper Series 5121, The World Bank.
    5. Yu Wang, 2013. "Veto Players and Foreign Aid Inflows," Oxford Development Studies, Taylor & Francis Journals, vol. 41(3), pages 391-408, September.
    6. Axel Dreher & Peter Nunnenkamp & Susann Thiel & Rainer Thiele, 2010. "Aid Allocation by German NGOs: Does the Degree of Public Refinancing Matter?," Kiel Working Papers 1584, Kiel Institute for the World Economy.
    7. Lin, Faqin & Sim, Nicholas C.S., 2013. "Trade, income and the Baltic Dry Index," European Economic Review, Elsevier, vol. 59(C), pages 1-18.
    8. Galiani, Sebastian & Knack, Stephen & Xu, Lixin Colin & Zou, Ben, 2014. "The effect of aid on growth : evidence from a quasi-experiment," Policy Research Working Paper Series 6865, The World Bank.
    9. Dreher, Axel & Nunnenkamp, Peter & Thiel, Susann & Thiele, Rainer, 2010. "Aid allocation by German NGOs: Does the degree of public refinancing matter?," Center for European, Governance and Economic Development Research Discussion Papers 92, University of Goettingen, Department of Economics.
    10. Axel Dreher & Vera Eichenauer & Kai Gehring, 2013. "Geopolitics, Aid and Growth," CESifo Working Paper Series 4299, CESifo Group Munich.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:aea:aejmac:v:1:y:2009:i:2:p:225-44. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros) or (Michael P. Albert).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.