Food Aid Delivery, Food Security and Aggregate Welfare in a Small Open Economy: Theory and Evidence
AbstractA small-open-economy model is developed to examine how the method of food aid disbursement affects labor employment, food security and aggregate welfare, in recipient countries, in an environment in which private sector firms pay efficiency wages to induce effort. Two forms of food aid delivery are considered: first is project food aid, under which food aid is used to finance infrastructure development and consumers are required to participate in public projects in order to receive food aid; the second is non-project food aid, which we use to capture all forms of food aid distributed to consumers free of charge. The model suggests that, when food aid is used to finance infrastructure development, it has no labor disincentive effects in the food industry, increases food security and decreases the level of unemployment in the recipient country. When food aid is distributed to consumers free of charge, however, the model predicts that it creates labor disincentive effects in the food industry, increases the unemployment level and decreases food security. Under both methods of distribution, the effect of food aid on aggregate welfare is ambiguous. Empirical results provide suggestive evidence for the hypothesis that project food aid increases food security while non-project food aid decreases food security.
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Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 98-1.
Length: 52 pages
Date of creation: 1998
Date of revision:
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Find related papers by JEL classification:
- J4 - Labor and Demographic Economics - - Particular Labor Markets
- Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture
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