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On the Potential of Foreign Aid as Insurance

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Author Info
Stéphane Pallage
Michel A. Robe
Catherine Bérubé

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Abstract

In this paper, we argue that it would be fruitful to revisit foreign aid's potential as an insurance mechanism against macroeconomic shocks. In a simple model of aid flows between two endowment economies, we show that at least three fourths of the large welfare costs of macroeconomic fluctuations in poor countries could be alleviated by a simple reallocation of aid flows across time.

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Paper provided by CIRPEE in its series Cahiers de recherche with number 0404.

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Date of creation: 2004
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Handle: RePEc:lvl:lacicr:0404

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Related research
Keywords: Foreign aid; Consumption smoothing; Macroeconomic fluctuations; Welfare;

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Find related papers by JEL classification:
F35 - International Economics - - International Finance - - - Foreign Aid
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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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.:
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  4. Ricardo J. Caballero, 2003. "The Future of the IMF," American Economic Review, American Economic Association, vol. 93(2), pages 31-38, May. [Downloadable!]
  5. Benedict J. Clements & Sanjeev Gupta & Erwin Tiongson, 2003. "Foreign Aid and Consumption Smoothing: Evidence from Global Food Aid," IMF Working Papers 03/40, International Monetary Fund. [Downloadable!]
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  8. Ale Bulir & A. Javier Hamann, 2003. "Aid Volatility: An Empirical Assessment," IMF Staff Papers, Palgrave Macmillan Journals, vol. 50(1), pages 4. [Downloadable!] (restricted)
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  11. Lahiri, Sajal & Raimondos-Moller, Pascalis, 2000. "Lobbying by Ethnic Groups and Aid Allocation," Economic Journal, Royal Economic Society, vol. 110(462), pages C62-79, March. [Downloadable!] (restricted)
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  12. Dollar, David & Easterly, William, 1999. "The Search for the Key: Aid, Investment and Policies in Africa," Journal of African Economies, Oxford University Press, vol. 8(4), pages 546-77, December.
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  14. repec:rus:hseeco:123092 is not listed on IDEAS
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  24. Lahiri, Sajal & Raimondos-Moller, Pascalis, 1997. "Competition for aid and trade policy," Journal of International Economics, Elsevier, vol. 43(3-4), pages 369-385, November. [Downloadable!] (restricted)
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  25. Robert E. Lucas, 2003. "Macroeconomic Priorities," American Economic Review, American Economic Association, vol. 93(1), pages 1-14, March. [Downloadable!]
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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. Pierre-Richard Agénor & Joshua Aizenman, 2007. "Aid Volatility and Poverty Traps," NBER Working Papers 13400, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Cristina Arellano & Aleš Bulir & Timothy D. Lane & Leslie Lipschitz, 2005. "The Dynamic Implications of Foreign Aid and Its Variability," IMF Working Papers 05/119, International Monetary Fund. [Downloadable!]
    Other versions:
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