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Logic of aid in an intertemporal setting

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Author Info

  • Slobodan Djajic

    () (IUHEI)

  • Sajal Lahiri

    () (Southern Illinois University)

  • Pascalis Raimondos-Moller

    () (Copenhagen Business School)

Abstract

This paper studies the welfare implications of temporary foreign aid in the context of a simple two-country model of trade. In addition to its usual effects, a transfer of income in one period is assumed to influence the preferences of the recipient country in the following period. The implied changes in the terms of trade over the two periods are consistent with a number of possible outcomes with respect to the intertemporal welfare of the donor, the recipient, and the world as a whole. Particular attention is devoted to the conditions for strict Pareto improvement and the circumstances under which temporary aid transactions are likely to occur.

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Bibliographic Info

Paper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 06-2003.

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Length: 24
Date of creation: Jun 2003
Date of revision:
Publication status: Published in Review of International Economics, Volume 12, 1, 2004, pages 151-161
Handle: RePEc:gii:giihei:heiwp06-2003

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Keywords: Foreign aid; terms of trade; international transfers; intertemporal model;

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References

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  1. Eaton, Jonathan & Fernandez, Raquel, 1995. "Sovereign debt," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077 Elsevier.
  2. Robert M. Townsend, . "Risk and Insurance in Village India," University of Chicago - Population Research Center 91-3a, Chicago - Population Research Center.
  3. Maizels, Alfred & Nissanke, Machiko K., 1984. "Motivations for aid to developing countries," World Development, Elsevier, vol. 12(9), pages 879-900, September.
  4. Bhagwati, Jagdish N & Brecher, Richard A & Hatta, Tatsuo, 1983. "The Generalized Theory of Transfers and Welfare: Bilateral Transfers in a Multilateral World," American Economic Review, American Economic Association, vol. 73(4), pages 606-18, September.
  5. Klemperer, P., 1992. "Competition when Consumers Have Switching Costs: An Overview," Economics Series Working Papers 99142, University of Oxford, Department of Economics.
  6. Galor, O. & Polemarchakis, H.M., 1984. "Intertemporal equilibrium and the transfor paradox," CORE Discussion Papers 1984014, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Turunen-Red, Arja H. & Woodland, Alan D., 1988. "On the multilateral transfer problem : Existence of Pareto improving international transfers," Journal of International Economics, Elsevier, vol. 25(3-4), pages 249-269, November.
  8. Slobodan Djajic, Sajal Lahiri and Pascalis Raimondos-Møller, . "Foreign aid, domestic investment and welfare," Economics Discussion Papers 463, University of Essex, Department of Economics.
  9. Maurice Obstfeld, 1993. "International Adjustment with Habit-Forming Consumption: A Diagrammatic Exposition," NBER Working Papers 4094, National Bureau of Economic Research, Inc.
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Cited by:
  1. Inmaculada Martínez Zarzoso & Felictas Nowak-Lehmann D. & Stephan Klasen & Mario Larch, 2008. "Does German Development Aid Promote German Exports?," Ibero America Institute for Econ. Research (IAI) Discussion Papers 170, Ibero-America Institute for Economic Research.
  2. Felicitas Nowak-Lehmann D. & Inmaculada Martínez Zarzoso & Stephan Klasen & Dierk Herzer, 2009. "Aid and Trade - A Donor’s Perspective," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 7, Courant Research Centre PEG.
  3. Djajic, Slobodan, 2008. "Foreign Aid, Infrastructure Development, and Welfare: An Intertemporal Analysis," Working Papers RP2008/64, World Institute for Development Economic Research (UNU-WIDER).

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