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A Model of Aid and Dutch Disease in Sub-Saharan Africa

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  • David Fielding
  • Fred Gibson

Abstract

International aid has an ambiguous effect on the macro-economy of the recipient country. To the extent that aid raises consumer expenditure, there will be some real exchange rate appreciation and a shift of resources away from traded goods production and into non-traded goods production. However, aid for investment in the traded goods sector can mitigate this effect. Also, a relatively high level of productivity in the non-traded goods sector combined with a high level of investment will tend to depreciate the real exchange rate. We examine aid inflows in 26 Sub- Saharan African countries, and find a variety of macro-economic responses. Some of the variation in the responses can be explained by variation in observable country characteristics; this has implications for donor policy.

Suggested Citation

  • David Fielding & Fred Gibson, 2012. "A Model of Aid and Dutch Disease in Sub-Saharan Africa," Discussion Papers 12/02, University of Nottingham, CREDIT.
    • Handle: RePEc:not:notcre:12/02
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    Cited by:

    1. Naoko C. Kojo, 2015. "Demystifying Dutch Disease," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 6(02), pages 1-23.
    2. Ashoff, Guido, 2015. "Die Global Governance-Qualität der internationalen Aid Effectiveness Agenda: eine theoretische Analyse und Bewertung der Systemreform der internationalen Entwicklungszusammenarbeit," IDOS Studies, German Institute of Development and Sustainability (IDOS), volume 87, number 87.

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