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Aid, Exports, and Growth

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  • Joong Shik Kang
  • Alessandro Prati
  • Alessandro Rebucci

Abstract

We use a heterogeneous panel VAR model identified through factor analysis to study the dynamic response of exports, imports, and per capita GDP growth to a “global” aid shock. We find that a global aid shock can affect exports, imports, and growth either positively or negatively. As a result, the relation between aid and growth is mixed, consistent with the ambiguous results in the existing literature. For most countries in the sample, when aid reduces exports and imports, it also reduces growth; and, when aid increases exports and imports, it also increases growth. This evidence is consistent with a DD hypothesis, but also shows that aid-receiving countries are not “doomed” to catch DD.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/73.

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Length: 29
Date of creation: 20 Mar 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/73

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Related research

Keywords: Development assistance; External shocks; Exchange rate appreciation; Exports; Imports; Economic growth; Economic models; Time series; real exchange rate; exchange rate policy; trade liberalization; factor analysis; export performance; real exchange rate appreciation; global shocks; trading partners; output growth; balance of payments; export price; trade flow; endogenous growth; trade flows; export sector; real exchange rate overvaluation; domestic prices; trade openness; exogenous shock; dynamic effects; commodity prices; tradable goods; endogenous growth theory; bilateral aid; global integration; exchange rate adjustment; imported goods; export prices; trade liberalization efforts; positive externalities; import demand; open economies; dynamic growth; trade reforms;

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  1. Raghuram G. Rajan & Arvind Subramanian, 2008. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 643-665, November.
  2. Raghuram G. Rajan & Arvind Subramanian, 2009. "Aid, Dutch Disease, and Manufacturing Growth," Working Papers 196, Center for Global Development.
  3. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2001. "On the Empirics of Foreign Aid and Growth," EPRU Working Paper Series 03-13, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Sep 2003.
  4. Jones, Charles I, 1995. "Time Series Tests of Endogenous Growth Models," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 495-525, May.
  5. Thierry Tressel & Alessandro Prati, 2006. "Aid Volatility and Dutch Disease," IMF Working Papers 06/145, International Monetary Fund.
  6. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
  7. Kevin Lee & M. Hashem Pesaran & Ron Smith, 1998. "Growth Empirics: A Panel Data Approach- A Comment," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 319-323, February.
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