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Aid, Dutch disease, and manufacturing growth

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  • Rajan, Raghuram G.
  • Subramanian, Arvind

Abstract

We examine the effects of aid on the growth of manufacturing, using a methodology that exploits the variation within countries and across manufacturing sectors, and corrects for possible reverse causality. We find that aid inflows have systematic adverse effects on a country's competitiveness, as reflected in the lower relative growth rate of exportable industries. We provide some evidence suggesting that the channel for these effects is the real exchange rate appreciation caused by aid inflows. We conjecture that this may explain, in part, why it is hard to find robust evidence that foreign aid helps countries grow.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 94 (2011)
Issue (Month): 1 (January)
Pages: 106-118

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Handle: RePEc:eee:deveco:v:94:y:2011:i:1:p:106-118

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Web page: http://www.elsevier.com/locate/devec

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Keywords: Aid Dutch disease Exports Manufacturing Exchange rate;

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References

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  17. Yano, M. & Nugent, J.B. & Lay, R.N., 1995. "Aid, Non-Traded Goods and the Transfer Paradox in Small Countries," Papers 9515, Southern California - Department of Economics.
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  24. Michael A. Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting chickens when they hatch: The short-term effect of aid on growth," International Finance 0407010, EconWPA.
  25. Thierry Tressel & Alessandro Prati, 2006. "Aid Volatility and Dutch Disease," IMF Working Papers 06/145, International Monetary Fund.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Efficacité de l’Aide publique au développement
    by marinferry@hotmail.fr (Marin Ferry) in BS Initiative on 2013-11-26 09:36:52
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