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The Volatility of Aid

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  • George Mavrotas
  • David Fielding

Abstract

Issues related to the volatility of aid flows are now becoming crucial in view of their relevance to the achievement of the Millennium Development Goals. The paper examines aid volatility using data for 66 aid recipients over the period 1973-2002. We improve upon earlier work in this important area by disaggregating total aid inflows into sector and programme aid. In this way they avoid focussing on a single aggregate, unlike most previous studies on aid volatility. They also adopt a different methodology to capture aid volatility. The institutional quality of the aid recipient affects the stability of sector aid but not that of programme assistance. Moreover, more open economies, which tend to be smaller and richer, ceteris paribus, are associated with more volatile sector aid flows. [Discussion Paper No. 2005/06]

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Bibliographic Info

Paper provided by eSocialSciences in its series Working Papers with number id:3166.

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Date of creation: Nov 2010
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Handle: RePEc:ess:wpaper:id:3166

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Keywords: aid volatility; aid heterogeneity; project aid; programme assistance; MDGs;

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  1. Sanjeev Gupta & Benedict Clements & Erwin R. Tiongson, 2004. "Foreign Aid and Consumption Smoothing: Evidence from Global Food Aid," Review of Development Economics, Wiley Blackwell, Wiley Blackwell, vol. 8(3), pages 379-390, 08.
  2. Peter S. Heller & Sanjeev Gupta, 2002. "More Aid—Making It Work for the Poor," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 3(4), pages 131-146, October.
  3. 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, Taylor & Francis Journals, vol. 36(3), pages 31-49.
  4. Dollar, David & Kraay, Aart, 2003. "Institutions, trade, and growth," Journal of Monetary Economics, Elsevier, Elsevier, vol. 50(1), pages 133-162, January.
  5. Addison, Tony & Mavrotas, George & McGillivray, Mark, 2005. "Aid, Debt Relief and New Sources of Finance for Meeting the Millennium Development Goals," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2005/09, World Institute for Development Economic Research (UNU-WIDER).
  6. A. Javier Hamann & Ales Bulir, 2001. "How Volatile and Unpredictable Are Aid Flows, and What Are the Policy Implications?," IMF Working Papers 01/167, International Monetary Fund.
  7. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9526, Faculty of Economics, University of Cambridge.
  8. Mavrotas, George, 2003. "Which Types of Aid Have the Most Impact?," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  9. Michel A. Robe & Stephane Pallage, 2000. "Foreign Aid And The Business Cycle," Computing in Economics and Finance 2000, Society for Computational Economics 107, Society for Computational Economics.
  10. Tony Killick, 2004. "Politics, Evidence and the New Aid Agenda," Development Policy Review, Overseas Development Institute, vol. 22(1), pages 5-29, 01.
  11. Alberto Alesina & David Dollar, 1998. "Who Gives Foreign Aid to Whom and Why?," NBER Working Papers 6612, National Bureau of Economic Research, Inc.
  12. Michael A. Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting chickens when they hatch: The short-term effect of aid on growth," International Finance, EconWPA 0407010, EconWPA.
  13. George Mavrotas, 2002. "Foreign aid and fiscal response: Does aid disaggregation matter?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 138(3), pages 534-559, September.
  14. Lin, Tun & Mavrotas, George, 2004. "A Contract Perspective on the International Finance Facility," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  15. Tito Cordella & Giovanni Dell'Ariccia, 2003. "Budget Support Versus Project Aid," IMF Working Papers 03/88, International Monetary Fund.
  16. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 29(1), pages 1-16, February.
  17. Ale Bulir & A. Javier Hamann, 2003. "Aid Volatility: An Empirical Assessment," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 4.
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