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Aid Volatility, Policy and Development

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  • Hudson, John
  • Mosley, Paul

Abstract

Summary We build on Bulir and Hamann's analysis of aid volatility [Bulir, A., & Hamann, J. (2003). Aid volatility: An empirical assessment. IMF Staff Papers, 50(1), 64-89; Bulir, A., & Hamann, J. (2008) Volatility of development aid: From the frying pan into the fire? Washington DC: IMF, paper submitted to this Special Section], showing that the conclusions reached depend on the dataset used. Their argument that the poorest countries have the highest volatility appears not to be correct. The impact of volatility on growth is negative overall, but differs between positive and negative volatility. The mix between "responsive" components of aid, for example, programme aid, and "proactive" components, for example, technical assistance, is important. Finally, we conclude that measures which increase trust between donor and recipient, and reductions in the degree of donor "oligopoly," reduce aid volatility without obviously reducing its effectiveness.

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Bibliographic Info

Article provided by Elsevier in its journal World Development.

Volume (Year): 36 (2008)
Issue (Month): 10 (October)
Pages: 2082-2102

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Handle: RePEc:eee:wdevel:v:36:y:2008:i:10:p:2082-2102

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

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Keywords: aid volatility disasters trust upside and downside volatility;

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References

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  1. Collier, Paul & Dollar, David, 2000. "Can the world cut poverty in half ? how policy reform and effective aid can meet international development goals," Policy Research Working Paper Series 2403, The World Bank.
  2. Lele, Uma & Goldsmith, Arthur A, 1989. "The Development of National Agricultural Research Capacity: India's Experience with the Rockefeller Foundation and Its Significance for Africa," Economic Development and Cultural Change, University of Chicago Press, vol. 37(2), pages 305-43, January.
  3. Timothy D. Lane & Leslie Lipschitz & Cristina Arellano & Ales Bulir, 2005. "The Dynamic Implications of Foreign Aid and its Variability," IMF Working Papers 05/119, International Monetary Fund.
  4. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2001. "On the Empirics of Foreign Aid and Growth," EPRU Working Paper Series 03-13, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Sep 2003.
  5. Paul Mosley & Abrar Suleiman, 2005. "Aid, agriculture and poverty in developing countries," Working Papers 2005010, The University of Sheffield, Department of Economics, revised Jun 2005.
  6. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
  7. Bulír, Ales & Hamann, A. Javier, 2008. "Volatility of Development Aid: From the Frying Pan into the Fire?," World Development, Elsevier, vol. 36(10), pages 2048-2066, October.
  8. Eifert, Benn & Gelb, Alan, 2005. "Improving the dynamics of aid : towards more predictable budget support," Policy Research Working Paper Series 3732, The World Bank.
  9. Garey Ramey & Valerie A. Ramey, 1994. "Cross-Country Evidence on the Link Between Volatility and Growth," NBER Working Papers 4959, National Bureau of Economic Research, Inc.
  10. Gillman, Max & Nakov, Anton, 2005. "Granger Causality of the Inflation-Growth Mirror in Accession Countries," CEPR Discussion Papers 4845, C.E.P.R. Discussion Papers.
  11. Collier, Paul & Dollar, David, 1999. "Aid allocation and poverty reduction," Policy Research Working Paper Series 2041, The World Bank.
  12. Ale Bulir & A. Javier Hamann, 2003. "Aid Volatility: An Empirical Assessment," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 4.
  13. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  14. A. Javier Hamann & Ales Bulir, 2006. "Volatility of Development Aid," IMF Working Papers 06/65, International Monetary Fund.
  15. Paul Mosley & John Hudson & Arjan Verschoor, 2004. "Aid, Poverty Reduction and the 'New Conditionality'," Economic Journal, Royal Economic Society, vol. 114(496), pages F217-F243, 06.
  16. Robert Lensink & Oliver Morrissey, 2000. "Aid instability as a measure of uncertainty and the positive impact of aid on growth," Journal of Development Studies, Taylor & Francis Journals, vol. 36(3), pages 31-49.
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Citations

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Cited by:
  1. Temple, Jonathan R.W., 2010. "Aid and Conditionality," Handbook of Development Economics, Elsevier.
  2. Brück, Tilman & Xu, Guo, 2012. "Who gives aid to whom and when? Aid accelerations, shocks and policies," European Journal of Political Economy, Elsevier, vol. 28(4), pages 593-606.
  3. Rabia Butt & Attiya Yasmin Javid, 2013. "Foreign Aid and the Fiscal Behaviour of Government of Pakistan," PIDE-Working Papers 2013:96, Pakistan Institute of Development Economics.
  4. Kathavate, Jay & Mallik, Girijasankar, 2012. "The impact of the Interaction between institutional quality and aid volatility on growth: theory and evidence," Economic Modelling, Elsevier, vol. 29(3), pages 716-724.
  5. Pierre-Richard Agénor & Joshua Aizenman, 2007. "Aid Volatility and Poverty Traps," NBER Working Papers 13400, National Bureau of Economic Research, Inc.
  6. Jay Kathavate, 2013. "Corruption, aid volatility & growth," Economics Bulletin, AccessEcon, vol. 33(2), pages 1159-1169.
  7. Gualberti, Giorgio & Singer, Christine Eibs & Bazilian, Morgan, 2013. "The capacity to spend development funds in the energy sector," Utilities Policy, Elsevier, vol. 26(C), pages 36-44.
  8. Kathavate, Jay, 2013. "Direct & Indirect Effects of Aid Volatility on Growth: Do Stronger Institutions Play a Role?," MPRA Paper 45187, University Library of Munich, Germany.

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