Advanced Search
MyIDEAS: Login to save this paper or follow this series

Aid, Volatility and Growth Again. When Aid Volatility Matters and When it Does Not

Contents:

Author Info

  • Lisa Chauvet

    (DIAL - Développement, institutions et analyses de long terme - IRD)

  • Patrick Guillaumont

    (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)

Abstract

In previous papers we have argued that aid is likely to mitigate the negative effects of external shocks on economic growth (i.e. that aid is more effective in countries which are more vulnerable to external shocks). Recently an important debate has emerged about the possible negative effects of aid volatility itself. However, the cushioning effect of aid may involve some volatility in aid flows, which then is not necessarily negative for growth. In this paper we examine to what extent the time profile of aid disbursements may contribute to an increase or a decrease of aid effectiveness. We first show that aid, even if volatile, is not clearly as pro-cyclical as often argued, and, even if pro-cyclical, is not necessarily destabilizing. We measure aid volatility by several methods and assess pro-cyclicality of aid with respect to exports, thus departing from previous literature, which usually assess pro-cyclicality of aid with respect to national income or fiscal receipts. The stabilizing/destabilizing nature of aid is measured by the difference in the volatility of exports and the volatility of the aid plus exports flows. Then, in order to take into account the diversity of shocks to which aid can respond, we consider the effect of aid on income volatility and again find that aid is making growth more stable, while its volatility reduces this effect. We finally evidence through growth regressions that the higher effectiveness of aid in vulnerable countries is to a large extent due to its stabilizing effect.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://halshs.archives-ouvertes.fr/docs/00/55/71/23/PDF/2007.07.pdf
Download Restriction: no

Bibliographic Info

Paper provided by HAL in its series Working Papers with number halshs-00557123.

as in new window
Length:
Date of creation: 18 Jan 2011
Date of revision:
Handle: RePEc:hal:wpaper:halshs-00557123

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00557123/en/
Contact details of provider:
Web page: http://hal.archives-ouvertes.fr/

Related research

Keywords: cerdi;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, Elsevier, vol. 64(2), pages 547-570, April.
  2. 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.
  3. Garey Ramey & Valerie A. Ramey, 1994. "Cross-Country Evidence on the Link Between Volatility and Growth," NBER Working Papers 4959, National Bureau of Economic Research, Inc.
  4. P. Guillaumont & J.-L Combes & S. Guillaumont Jeanneney & P. Motel Combes, 2000. "Ouverture sur l'extérieur et instabilité des taux de croissance," Revue Française d'Économie, Programme National Persée, Programme National Persée, vol. 15(1), pages 3-33.
  5. Patrick GUILLAUMONT & Lisa CHAUVET, 1999. "Aid and Performance: A Reassessment," Working Papers 199910, CERDI.
  6. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, American Economic Association, vol. 90(4), pages 847-868, September.
  7. Fielding, David & Mavrotas, George, 2005. "The Volatility of Aid," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) DP2005/06, World Institute for Development Economic Research (UNU-WIDER).
  8. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  9. Stephane Pallage & Michel Robe, 1998. "Foreign Aid and the Business Cycle," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, Université du Québec à Montréal 63, CREFE, Université du Québec à Montréal.
  10. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  11. 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.
  12. Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2004. "When it rains, it pours: Procyclical capital flows and macroeconomic policies," MPRA Paper 13883, University Library of Munich, Germany.
  13. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, Elsevier, vol. 68(1), pages 29-51, July.
  14. Raddatz, Claudio, 2007. "Are external shocks responsible for the instability of output in low-income countries?," Journal of Development Economics, Elsevier, Elsevier, vol. 84(1), pages 155-187, September.
  15. Collier, Paul & Dehn, Jan, 2001. "Aid, shocks, and growth," Policy Research Working Paper Series 2688, The World Bank.
  16. Rand, John & Tarp, Finn, 2002. "Business Cycles in Developing Countries: Are They Different?," World Development, Elsevier, Elsevier, vol. 30(12), pages 2071-2088, December.
  17. Ale Bulir & A. Javier Hamann, 2003. "Aid Volatility: An Empirical Assessment," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 4.
  18. Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
  19. Bulír, Ales & Hamann, A. Javier, 2008. "Volatility of Development Aid: From the Frying Pan into the Fire?," World Development, Elsevier, Elsevier, vol. 36(10), pages 2048-2066, October.
  20. Hnatkovska, Viktoria & Loayza, Norman, 2004. "Volatility and growth," Policy Research Working Paper Series 3184, The World Bank.
  21. Tavares, Jose, 2003. "Does foreign aid corrupt?," Economics Letters, Elsevier, Elsevier, vol. 79(1), pages 99-106, April.
  22. Lisa CHAUVET & Patrick GUILLAUMONT, 2003. "Aid and Growth Revisited: Policy, Economic Vulnerability and Political Instability," Working Papers 200327, CERDI.
  23. World Bank, 2006. "World Development Indicators 2006," World Bank Publications, The World Bank, number 8151, August.
  24. McGillivray, Mark, 2003. "Aid Effectiveness and Selectivity: Integrating Multiple Objectives into Aid Allocations," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  25. Robert J. Hodrick & Edward Prescott, 1981. "Post-War U.S. Business Cycles: An Empirical Investigation," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 451, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  26. Frank Windmeijer, 2000. "A finite sample correction for the variance of linear two-step GMM estimators," IFS Working Papers, Institute for Fiscal Studies W00/19, Institute for Fiscal Studies.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Thierry Kangoye, 2008. "Instability from trade and democracy: the long-run effect of aid," Economics Bulletin, AccessEcon, vol. 6(41), pages 1-16.
  2. Guillaumont, Patrick, 2008. "An Economic Vulnerability Index: Its Design and Use for International Development Policy," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2008/99, World Institute for Development Economic Research (UNU-WIDER).
  3. Kumar, Ronald/R, 2011. "Role of Trade, Aid, Remittances and Financial Development in Pakistan," MPRA Paper 38871, University Library of Munich, Germany.
  4. Yousuf, Ahmed Sadek, 2012. "Assessing Impact of Health Oriented Aid on Infant Mortality Rates," MPRA Paper 43212, University Library of Munich, Germany, revised 10 Dec 2012.
  5. Thierry Kangoye, 2008. "Instability from trade and democracy: the long-run effect of aid," Post-Print hal-00331902, HAL.
  6. Patrick GUILLAUMONT & Sylviane GUILLAUMONT JEANNENEY, 2009. "Accounting for Vulnerability of African Countries in Performance Based Aid Allocation," Working Papers P08, FERDI.
  7. d’Aiglepierre, Rohen & Wagner, Laurent, 2013. "Aid and Universal Primary Education," Economics of Education Review, Elsevier, Elsevier, vol. 37(C), pages 95-112.
  8. Aurore Gary & Mathilde Maurel, 2013. "The effect of donors' policy coherence on growth," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 13046, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  9. Patrick GUILLAUMONT & Maëlan LE GOFF, 2010. "Aid and remittances: their stabilizing impact compared," Working Papers P12, FERDI.
  10. Sylviane Guillaumont Jeanneney & Sampawende Jules Tapsoba, 2011. "Pro cyclicité de la politique budgétaire et surveillance multilatérale dans les unions monétaires africaines," Working Papers halshs-00554337, HAL.
  11. Patrick GUILLAUMONT & Laurent WAGNER, 2014. "Aid effectiveness for poverty reduction: lessons from cross-country analyses, with a special focus on vulnerable countries," Working Papers P96, FERDI.
  12. Irene Yackovlev & Victor Duarte Lledo & Lucie Gadenne, 2009. "Cyclical Patterns of Government Expenditures in Sub-Saharan Africa," IMF Working Papers 09/274, International Monetary Fund.
  13. Patrick GUILLAUMONT & Sylviane GUILLAUMONT JEANNENEY, 2009. "Accounting for Vulnerability of African Countries in Performance Based Aid Allocation," Working Papers P08, FERDI.
  14. Ahmed, Junaid & Martinez-Zarzoso, Inmaculada, 2013. "Blessing or curse: The stabilizing role of remittances, foreign aid and FDI to Pakistan," Center for European, Governance and Economic Development Research Discussion Papers 153, University of Goettingen, Department of Economics.
  15. Kathavate, Jay, 2013. "Direct & Indirect Effects of Aid Volatility on Growth: Do Stronger Institutions Play a Role?," MPRA Paper 45187, University Library of Munich, Germany.
  16. Patrick GUILLAUMONT & Maëlan LE GOFF, 2010. "Aid and remittances: their stabilizing impact compared," Working Papers P12, FERDI.
  17. Yousuf, Ahmed Sadek, 2012. "Impact of Health Aid on Infant Mortality Rate," MPRA Paper 42945, University Library of Munich, Germany, revised 12 Oct 2012.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:halshs-00557123. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.