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Aid Allocation, Growth and Welfare with Productive Public Goods

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  • Pierre-Richard Agénor
  • Devrim Yilmaz

Abstract

This paper develops an open-economy intertemporal growth model with endogenous relative prices and an imperfect world capital market. The government provides two categories of public services, infrastructure and health, which are both productive. Externalities associated with infrastructure in the production of health services are also accounted for. The model is calibrated for a "typical" low-income country and used to examine the growth and welfare effects of both permanent and temporary, tied and untied, increases in aid. Dynamic trade-offs between the short- and the long-run effects of aid shocks on growth, welfare, and the real exchange rate are shown to depend crucially on the composition of aid flows.

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File URL: http://www.socialsciences.manchester.ac.uk/medialibrary/cgbcr/discussionpapers/dpcgbcr95.pdf
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Bibliographic Info

Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 95.

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Length: 52 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:man:cgbcrp:95

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  1. Rajkumar, Andrew Sunil & Swaroop, Vinaya, 2008. "Public spending and outcomes: Does governance matter?," Journal of Development Economics, Elsevier, vol. 86(1), pages 96-111, April.
  2. Torvik, Ragnar, 2001. "Learning by doing and the Dutch disease," European Economic Review, Elsevier, vol. 45(2), pages 285-306, February.
  3. Turnovsky, Stephen J, 1997. "Equilibrium Growth in a Small Economy Facing an Imperfect World Capital Market," Review of Development Economics, Wiley Blackwell, vol. 1(1), pages 1-22, February.
  4. Reinhart, Carmen & Ogaki, Masao & Ostry, Jonathan, 1996. "Saving Behavior in Low- and Middle-Income Developing Countries: A Comparison," MPRA Paper 6978, University Library of Munich, Germany.
  5. David Roodman, 2007. "The Anarchy of Numbers: Aid, Development, and Cross-Country Empirics," World Bank Economic Review, World Bank Group, vol. 21(2), pages 255-277, May.
  6. Kent P. Kimbrough, 1986. "Foreign Aid and Optimal Fiscal Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 19(1), pages 35-61, February.
  7. Alexander Pivovarsky & Benedict J. Clements & Sanjeev Gupta & Erwin Tiongson, 2003. "Foreign Aid and Revenue Response," IMF Working Papers 03/176, International Monetary Fund.
  8. John Hudson & Paul Mosley, 2007. "Aid Volatility, Policy and Development," Working Papers 2007015, The University of Sheffield, Department of Economics, revised Oct 2007.
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Cited by:
  1. San Martín Lizarralde, Marta & Barañano Mentxaka, Ilaski, 2014. "Foreign Aid Linked to Infrastructure and/or Pollution Abatement," IKERLANAK Ikerlanak;2014-78, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
  2. Thampanishvong Kannika, 2012. "Provision of Public Goods with the Presence of Inter-Class Conflicts," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 18(1), pages 1-29, April.
  3. Agénor, Pierre-Richard & Aizenman, Joshua, 2010. "Aid volatility and poverty traps," Journal of Development Economics, Elsevier, vol. 91(1), pages 1-7, January.
  4. Pamela Coke Hamilton & Yvonne Tsikata & Emmanuel Pinto Moreira, 2009. "Accelerating Trade and Integration in the Caribbean : Policy Options for Sustained Growth, Job Creation, and Poverty Reduction," World Bank Publications, The World Bank, number 2652, October.

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