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Logic of Aid in an Intertemporal Setting

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Author Info
Slobodan Djajic
Sajal Lahiri
Pascalis Raimondos-Møller

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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 pattern of consumption of the recipient country in the following period. The implied change in the terms of trade is 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, the only case consistent with the presumption that the acts of giving and receiving aid are voluntary.

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Publisher Info
Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 96-21.

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Handle: RePEc:kud:epruwp:96-21

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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.:
  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. [Downloadable!] (restricted)
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  2. 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. [Downloadable!] (restricted)
  3. Maizels, Alfred & Nissanke, Machiko K., 1984. "Motivations for aid to developing countries," World Development, Elsevier, vol. 12(9), pages 879-900, September. [Downloadable!] (restricted)
  4. Obstfeld, Maurice, 1992. "International Adjustment with Habit-Forming Consumption: A Diagrammatic Exposition," Review of International Economics, Blackwell Publishing, vol. 1(1), pages 32-48, November.
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  5. 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. [Downloadable!] (restricted)
  6. Klemperer, Paul, 1992. "Competition When Consumers Have Switching Costs: An Overview," CEPR Discussion Papers 704, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Galor, O & Polemarchakis, H M, 1987. "Intertemporal Equilibrium and the Transfer Paradox," Review of Economic Studies, Blackwell Publishing, vol. 54(1), pages 147-56, January. [Downloadable!] (restricted)
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  8. Djajic, Slobodan & Lahiri, Sajal & Raimondos-Moller, Pascalis, 1999. "Foreign Aid, Domestic Investment and Welfare," Economic Journal, Royal Economic Society, vol. 109(458), pages 698-707, October. [Downloadable!] (restricted)
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  9. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-91, May. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  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. [Downloadable!]
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  2. Djajic, Slobodan, 2008. "Foreign Aid, Infrastructure Development, and Welfare: An Intertemporal Analysis," Working Papers RP2008/64, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  3. Felicitas Nowak-Lehmann D. & Inmaculada Martínez-Zarzoso & Stephan Klasen & Dierk Herzer, 2008. "Aid and Trade - A Donor´s Perspective," Ibero America Institute for Econ. Research (IAI) Discussion Papers 171, Ibero-America Institute for Economic Research. [Downloadable!]
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