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Infrastructure Aid, Deindustrialization, and Welfare

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  • Eun Kwan Choi

Abstract

This paper investigates the deindustrialization and welfare effects of infrastructure aid in developing countries. In the short run, cost-saving infrastructure aid in the export sector increases the domestic wage rate, whereas the same aid in the import sector lowers it. The cost of nontraded goods rises whether the export or the import sector receives infrastructure aid. Infrastructure aid in the nontraded sector has no effect on domestic factor prices. Laborsaving infrastructure aid causes an expansion of the export sector, while capital-saving infrastructure aid results in a Dutch disease effect in the export sector. If aid is below the optimal level, infrastructure aid increases consumer income and welfare.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/150.

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Length: 24
Date of creation: 01 Jul 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/150

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Keywords: Economic models; export sector; import sector; currency appreciation; terms of trade; world prices; world market; import demand; tariff revenue; tariff rate; agricultural exports; export orientation; domestic production; open economy; export industry; exporters; export sectors; unemployment rate; domestic prices; exporter; international trade; factor markets; capital flows; terms-of-trade shocks; foreign trade; exporting developing countries; trade shocks; export tariff; zero profits; energy exports; traditional export sectors; trade model; intensive export; factor endowments; perfect competition; increased openness; domestic price; labor-intensive export; trade pattern; world price; currency depreciation;

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  1. Cassing, James H. & Warr, Peter G., 1985. "The distributional impact of a resource boom," Journal of International Economics, Elsevier, Elsevier, vol. 18(3-4), pages 301-319, May.
  2. Christopher Adam & David Bevan, 2004. "Aid, Public Expenditure and Dutch Disease," Development and Comp Systems 0409027, EconWPA.
  3. Younger, Stephen D., 1992. "Aid and the Dutch disease: Macroeconomic management when everybody loves you," World Development, Elsevier, Elsevier, vol. 20(11), pages 1587-1597, November.
  4. Nyoni, Timothy S., 1998. "Foreign Aid and Economic Performance in Tanzania," World Development, Elsevier, Elsevier, vol. 26(7), pages 1235-1240, July.
  5. Benjamin, Nancy C. & Devarajan, Shantayanan & Weiner, Robert J., 1989. "The Dutch disease in a developing country : Oil reserves in Cameroon," Journal of Development Economics, Elsevier, Elsevier, vol. 30(1), pages 71-92, January.
  6. W. E. G. Salter, 1959. "Internal And External Balance: The Role Op Price And Expenditure Effects," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 35(71), pages 226-238, 08.
  7. 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.
  8. Choi, E. Kwan, 2004. "Aid allocation and the transfer paradox in small open economies," International Review of Economics & Finance, Elsevier, Elsevier, vol. 13(3), pages 245-251.
  9. Mwanza Nkusu, 2004. "Aid and the Dutch Disease in Low-Income Countries," IMF Working Papers 04/49, International Monetary Fund.
  10. Elbadawi, Ibrahim A, 1999. "External Aid: Help or Hindrance to Export Orientation in Africa?," Journal of African Economies, Centre for the Study of African Economies (CSAE), Centre for the Study of African Economies (CSAE), vol. 8(4), pages 578-616, December.
  11. Torvik, Ragnar, 2001. "Learning by doing and the Dutch disease," European Economic Review, Elsevier, Elsevier, vol. 45(2), pages 285-306, February.
  12. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 92(368), pages 825-48, December.
  13. Jean-Philippe Stijns, 2003. "An Empirical Test of the Dutch Disease Hypothesis using a Gravity Model of Trade," International Trade, EconWPA 0305001, EconWPA.
  14. Vos, Rob, 1998. "Aid Flows and "Dutch Disease" in a General Equilibrium Framework for Pakistan," Journal of Policy Modeling, Elsevier, Elsevier, vol. 20(1), pages 77-109, February.
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