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The Potential of Foreign Aid as Insurance

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  • Stéphane Pallage

    (International Monetary Fund)

  • Michel A. Robe

    (International Monetary Fund)

  • Catherine Bérubé

    (International Monetary Fund)

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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Bibliographic Info

Article provided by Palgrave Macmillan 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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References

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Cited by:
  1. Arellano, Cristina & Bulír, Ales & Lane, Timothy & Lipschitz, Leslie, 2009. "The dynamic implications of foreign aid and its variability," Journal of Development Economics, Elsevier, vol. 88(1), pages 87-102, January.
  2. 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.
  3. Agénor, Pierre-Richard & Aizenman, Joshua, 2010. "Aid volatility and poverty traps," Journal of Development Economics, Elsevier, vol. 91(1), pages 1-7, January.
  4. Ales Bulir & Alma Romero-Barrutieta & Jose Daniel Rodríguez-Delgado, 2011. "The Dynamic Implications of Debt Relief for Low-Income Countries," IMF Working Papers 11/157, International Monetary Fund.
  5. Temple, Jonathan R.W., 2010. "Aid and Conditionality," Handbook of Development Economics, Elsevier.
  6. Kodama, Masahiro, 2012. "Aid Unpredictability and Economic Growth," World Development, Elsevier, vol. 40(2), pages 266-272.

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