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Foreign aid, human capital acquisition and educated Unemployment:Fish or fishing

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  • Liu, Xiangbo
  • Fan, Hua
  • Chao, Chi-Chur
  • Yu, Eden S.H.

Abstract

By tying aid to the productive purpose of the skilled sector, this paper explores the effects of foreign aid on human capital acquisition and educated unemployment in the recipient economy. Utilizing a search and matching model, a rise in the allocation of aid used for the productive purpose can provide incentives to firms for more job entries and result in a lower unemployment rate among skilled workers. However, this result can be mitigated or even overturned when endogenous human capital acquisition is incorporated. We also show that an increase in the portion of foreign aid used for education subsidy can increase the supply but reduce the demand for skilled labor. This thus results in a higher educated unemployment rate in the economy.

Suggested Citation

  • Liu, Xiangbo & Fan, Hua & Chao, Chi-Chur & Yu, Eden S.H., 2019. "Foreign aid, human capital acquisition and educated Unemployment:Fish or fishing," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 1-8.
    • Handle: RePEc:eee:reveco:v:64:y:2019:i:c:p:1-8
    DOI: 10.1016/j.iref.2019.05.007
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    References listed on IDEAS

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    1. Hatzipanayotou, Panos & Michael, Michael S., 1995. "Foreign aid and public goods," Journal of Development Economics, Elsevier, vol. 47(2), pages 455-467, August.
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    Cited by:

    1. Iyabo Adeola Olanrele & Segun Subair Awode, 2020. "Development Aid and Human Capital Development in Nigeria: A Sector Level-Analysis," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 7(1), pages 25-35.
    2. Tang, Le & Sun, Shiyu & Yang, Weiguo, 2021. "Investments in human capital: The evidence from China’s new rural pension scheme," Research in International Business and Finance, Elsevier, vol. 55(C).
    3. Leonard F. S. Wang & Ji Sun, 2023. "Corporate profit tax, firm entry with unemployment, and income inequality," Bulletin of Economic Research, Wiley Blackwell, vol. 75(2), pages 380-392, April.
    4. Adediyan Aderopo Raphael & Ehisuoria Oseremen ThankGod, 2022. "External aid behavior in the recipient economy: A probit regression for Africa," Journal of Economics and Management, Sciendo, vol. 44(1), pages 1-18, January.
    5. Thanh Dinh Su & Canh Phuc Nguyen, 2022. "Foreign financial flows, human capital and economic growth in African developing countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3010-3031, July.

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