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Logic of Aid in an Intertemporal Setting

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  • Slobodan Djajić
  • Sajal Lahiri
  • Pascalis Raimondos-Møller

Abstract

The paper studies the welfare implications of temporary foreign aid in the context of a simple two-country model of trade. In addition to its usual effects, a transfer of income in one period is assumed to influence the preferences of the recipient country in the following period. The implied changes in the terms of trade over the two periods are consistent with a number of possible outcomes with respect to the intertemporal welfare of the donor, the recipient, and the world as a whole. Particular attention is devoted to the conditions for strict Pareto improvement and the circumstances under which temporary aid transactions are likely to occur. Copyright Blackwell Publishing Ltd 2004.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 12 (2004)
Issue (Month): 1 (02)
Pages: 151-161

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Handle: RePEc:bla:reviec:v:12:y:2004:i:1:p:151-161

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References

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  1. Maizels, Alfred & Nissanke, Machiko K., 1984. "Motivations for aid to developing countries," World Development, Elsevier, Elsevier, vol. 12(9), pages 879-900, September.
  2. Klemperer, P., 1992. "Competition when Consumers Have Switching Costs: An Overview," Economics Series Working Papers 99142, University of Oxford, Department of Economics.
  3. Bhagwati, Jagdish N & Brecher, Richard A & Hatta, Tatsuo, 1983. "The Generalized Theory of Transfers and Welfare: Bilateral Transfers in a Multilateral World," American Economic Review, American Economic Association, American Economic Association, vol. 73(4), pages 606-18, September.
  4. Galor, O. & Polemarchakis, H.M., 1984. "Intertemporal equilibrium and the transfor paradox," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 1984014, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Jonathan Eaton & Raquel Fernandez, 1995. "Sovereign Debt," Boston University - Institute for Economic Development, Boston University, Institute for Economic Development 59, Boston University, Institute for Economic Development.
  6. Townsend, R.M., 1991. "Risk and Insurance in Village India," University of Chicago - Economics Research Center, Chicago - Economics Research Center 91-3, Chicago - Economics Research Center.
  7. Turunen-Red, Arja H. & Woodland, Alan D., 1988. "On the multilateral transfer problem : Existence of Pareto improving international transfers," Journal of International Economics, Elsevier, Elsevier, vol. 25(3-4), pages 249-269, November.
  8. Slobodan Djajic, Sajal Lahiri and Pascalis Raimondos-Møller, . "Foreign aid, domestic investment and welfare," Economics Discussion Papers, University of Essex, Department of Economics 463, University of Essex, Department of Economics.
  9. Obstfeld, Maurice, 1992. "International Adjustment with Habit-Forming Consumption: A Diagrammatic Exposition," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 1(1), pages 32-48, November.
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Cited by:
  1. Inmaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann D. & Stephan Klasen & Mario Larch, 2009. "Does German Development Aid Promote German Exports?," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 10, pages 317-338, 08.
  2. Felicitas Nowak-Lehmann D. & Inmaculada Martínez Zarzoso & Stephan Klasen & Dierk Herzer, 2009. "Aid and Trade - A Donor’s Perspective," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 7, Courant Research Centre PEG.
  3. Djajic, Slobodan, 2008. "Foreign Aid, Infrastructure Development, and Welfare: An Intertemporal Analysis," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2008/64, World Institute for Development Economic Research (UNU-WIDER).
  4. Philipp Hühne & Birgit Meyer & Peter Nunnenkamp, 2013. "Who Benefits from Aid for Trade? Comparing the Effects on Recipient versus Donor Exports," Kiel Working Papers 1852, Kiel Institute for the World Economy.
  5. Fabian Barthel & Eric Neumayer & Peter Nunnenkamp & Pablo Selaya, 2013. "Competition for Export Markets and the Allocation of Foreign Aid: The Role of Spatial Dependence among Donor Countries," Kiel Working Papers 1875, Kiel Institute for the World Economy.

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