Can Foreign Aid Accelerate Stabilization?
AbstractThis paper studies the effect of foreign aid on economic stabilization. Following Alesina and Drazen (1991), we model the delay in stabilizing as the result of a distributional struggle: reforms are postponed because they are costly and each distributional faction hopes to reduce its share of the cost by outlasting its opponents in obstructing the required policies. Since the delay is used to signal each faction's strength, the effect of the transfer depends on the role it plays in the release of information. We show that this role depends on the timing of the transfer: foreign aid decided and transferred sufficiently early into the game leads to earlier stabilization; but aid decided or transferred too late is destabilizing and encourages further postponement of reforms.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4694.
Date of creation: Apr 1994
Date of revision:
Publication status: published as Economic Journal, June 1996
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Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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Other versions of this item:
- Casella, Alessandra & Eichengreen, Barry, 1994. "Can Foreign Aid Accelerate Stabilization?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 961, C.E.P.R. Discussion Papers.
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- F35 - International Economics - - International Finance - - - Foreign Aid
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3108, National Bureau of Economic Research, Inc.
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