Aid, Exports, and Growth: a Time-Series Perspective on the Dutch Disease Hypothesis
AbstractThe available evidence on the effects of aid on growth is notoriously mixed. We use a novel empirical methodology, a heterogeneous panel vector-autoregression model identified through factor analysis, to study the dynamic response of exports, imports, and per capita GDP growth to a “global” aid shock (the common component of individual country aid-to-GDP ratios). We find that the estimated cumulative responses of exports and per capita GDP growth to a global aid shock are strongly positively correlated, and both responses are inversely related to exchange rate overvaluation measures. We interpret this evidence as consistent with the Dutch disease hypothesis. However, we also find that, in countries with less overvalued real exchange rates, exports and per capita GDP growth respond positively to a global aid shock. This evidence suggests that preventing exchange rate overvaluations may allow aid-receiving countries to avoid the Dutch disease.
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Bibliographic InfoArticle provided by Università di Perugia in its journal Review of Economics and Institutions.
Volume (Year): 3 (2012)
Issue (Month): 2 ()
aid; common factors; Dutch disease; growth; panel VARs; exchange rate overvaluation;
Other versions of this item:
- Joong Shik Kang & Alessandro Prati & Alessandro Rebucci, 2010. "Aid, Exports, and Growth: A Time-Series Perspective on the Dutch Disease Hypothesis," Research Department Publications 4678, Inter-American Development Bank, Research Department.
- Joong Shik Kang & Alessandro Prati & Alessandro Rebucci, 2010. "Aid, Exports, and Growth: A Time-Series Perspective on the Dutch Disease Hypothesis," IDB Publications 6866, Inter-American Development Bank.
- F35 - International Economics - - International Finance - - - Foreign Aid
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
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- Nowak-Lehmann D., Felicitas & Martínez-Zarzoso, Inmaculada & Cardozo, Adriana & Herzer, Dierk & Klasen, Stephan, 2011. "Does Aid translate into Bilateral Trade? Findings for Recipient Countries," Proceedings of the German Development Economics Conference, Berlin 2011 61, Verein für Socialpolitik, Research Committee Development Economics.
- Felicitas Nowak-Lehmann & Inmaculada Martínez-Zarzoso & Dierk Herzer & Stephan Klasen & Adriana Cardozo, 2013. "Does foreign aid promote recipient exports to donor countries?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 149(3), pages 505-535, September.
- David Fielding & Fred Gibson, 2013.
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- David Fielding & Fred Gibson, 2011. "Aid and Dutch Disease in Sub-Saharan Africa," Working Papers 1108, University of Otago, Department of Economics, revised Aug 2011.
- Fielding, David & Gibson, Fred, 2012. "Aid and Dutch Disease in Sub-Saharan Africa," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
- João Sousa Andrade & António Portugal Duarte, 2013. "The Dutch Disease in the Portuguese Economy," GEMF Working Papers 2013-05, GEMF - Faculdade de Economia, Universidade de Coimbra.
- Inmaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann D. & Florian Johannsen, 2012.
"Foreign Aid, Exports and Development in Euromed,"
Ibero America Institute for Econ. Research (IAI) Discussion Papers
218, Ibero-America Institute for Economic Research.
- Lof, Matthijs & Mekasha, Tseday Jemaneh & Tarp, Finn, 2013. "Aid and income: Another time-series perspective," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
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