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The Potential of Foreign Aid as Insurance

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Author Info
Stéphane Pallage (International Monetary Fund)
Michel A. Robe (International Monetary Fund)
Catherine Bérubé (International Monetary Fund)

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Abstract

This paper quantifies the potential of foreign aid as an insurance mechanism against macroeconomic shocks. Within a dynamic model of aid flows between two endowment economies, we show that at least three-fourths of the large welfare costs of macroeconomic fluctuations in poor countries could be alleviated by a simple reallocation of aid flows across time. In developing countries subject to persistent macroeconomic shocks, the resulting welfare improvement is of first-order magnitude. Copyright 2006, International Monetary Fund

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Publisher Info
Article provided by Palgrave Macmillan Journals in its journal IMF Staff Papers.

Volume (Year): 53 (2006)
Issue (Month): 3 ()
Pages: 5
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Handle: RePEc:pal:imfstp:v:53:y:2006:i:3:p:5

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Keywords:

Find related papers by JEL classification:
F35 - International Economics - - International Finance - - - Foreign Aid
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

Cited by:
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  1. Pierre-Richard Agénor & Joshua Aizenman, 2007. "Aid Volatility and Poverty Traps," NBER Working Papers 13400, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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This page was last updated on 2009-11-30.

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