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Business Cycle Fluctuations, Large Shocks, and Development Aid: New Evidence

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Author Info

  • Era Dabla-Norris
  • Camelia Minoiu
  • Luis-Felipe Zanna

Abstract

We examine the cyclical properties of development aid using bilateral data for 22 donors and over 100 recipients during 1970?2005. We find that bilateral aid flows are on average procyclical with respect to business cycles in donor and recipient countries. However, they become countercyclical when recipient countries face large adverse shocks to the terms-of-trade or growth collapses-thus playing an important cushioning role. Aid outlays contract sharply during severe donor economic downturns; this effect is magnified by higher public debt levels. Additionally, bilateral aid flows are higher in the presence of IMF programs and are more countercyclical for recipient countries with stronger institutions.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/240.

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Length: 39
Date of creation: 01 Oct 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/240

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Keywords: Aid flows; Developed countries; Developing countries; Economic growth; Economic models; External shocks; Fund; Terms of trade;

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Cited by:
  1. Debasish Kumar Das & Champa Bati Dutta, 2013. "Global Financial Crisis And Foreign Development Assistance Shocks In Least Developing Countries," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 38(2), pages 1-41, June.
  2. Gravier-Rymaszewska, Joanna, 2012. "How Aid Supply Responds to Economic Crises: A Panel VAR Approach," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  3. Andrea Filippo Presbitero, 2013. "Aid and Vulnerability," Mo.Fi.R. Working Papers 88, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  4. repec:aqr:wpaper:201208 is not listed on IDEAS
  5. International Monetary Fund, 2012. "Are Foreign Aid and Remittance Inflows a Hedge against Food Price Shocks?," IMF Working Papers 12/67, International Monetary Fund.
  6. Christian EBEKE & Jean-Louis COMBES & Mireille NTSAMA ETOUNDI, 2011. "Are Foreign Aid and Remittances a Hedge against Food Price Shocks in Developing Countries?," Working Papers 201121, CERDI.

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