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Aid and Dutch Disease in Sub-Saharan Africa

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  • David Fielding

    ()
    (Department of Economics, University of Otago)

  • Fred Gibson

    ()
    (Department of Economics, University of Otago)

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 SubSaharan 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.

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File URL: http://www.business.otago.ac.nz/econ/research/discussionpapers/DP_1108.pdf
File Function: This version, 2011
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Bibliographic Info

Paper provided by University of Otago, Department of Economics in its series Working Papers with number 1108.

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Length: 31 pages
Date of creation: Aug 2011
Date of revision: Aug 2011
Handle: RePEc:otg:wpaper:1108

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Keywords: Aid; Dutch Disease; Africa;

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References

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  1. Pablo Selaya & Rainer Thiele, 2010. "Aid and Sectoral Growth: Evidence from Panel Data," Journal of Development Studies, Taylor & Francis Journals, vol. 46(10), pages 1749-1766.
  2. Perotti, Roberto & Alesina, Alberto, 1996. "Income Distribution, Political Instability, and Investment," Scholarly Articles 4553018, Harvard University Department of Economics.
  3. Bazoumana Ouattara & Eric Strobl, 2008. "Foreign Aid Inflows And The Real Exchange Rate In The Cfa Franc Zone," Economie Internationale, CEPII research center, issue 116, pages 37-52.
  4. Fielding, David, 2007. "Aid and Dutch Disease in the South Pacific," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  5. Christopher Adam & David Bevan, 2003. "Aid, Public Expenditure and Dutch Disease," CSAE Working Paper Series 2003-02, Centre for the Study of African Economies, University of Oxford.
  6. White, Howard & Wignaraja, Ganeshan, 1992. "Exchange rates, trade liberalization and aid: The Sri Lankan experience," World Development, Elsevier, vol. 20(10), pages 1471-1480, October.
  7. Raghuram G. Rajan & Arvind Subramanian, 2009. "Aid, Dutch Disease, and Manufacturing Growth," Working Papers, Center for Global Development 196, Center for Global Development.
  8. Joong Shik Kang & Alessandro Prati & Alessandro Rebucci, 2010. "Aid, Exports, and Growth: A Time-Series Perspective on the Dutch Disease Hypothesis," IDB Publications 6866, Inter-American Development Bank.
  9. Christopher S. Adam & David L. Bevan, 2006. "Aid and the Supply Side: Public Investment, Export Performance, and Dutch Disease in Low-Income Countries," World Bank Economic Review, World Bank Group, World Bank Group, vol. 20(2), pages 261-290.
  10. Yves Bourdet & Hans Falck, 2006. "Emigrants' remittances and Dutch Disease in Cape Verde," International Economic Journal, Taylor & Francis Journals, Taylor & Francis Journals, vol. 20(3), pages 267-284.
  11. Christopher Adam & Stephen A O`Connell, 2000. "Aid versus Trade Revisited," Economics Series Working Papers WPS/2000-19, University of Oxford, Department of Economics.
  12. Thierry Tressel & Alessandro Prati, 2006. "Aid Volatility and Dutch Disease," IMF Working Papers 06/145, International Monetary Fund.
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Cited by:
  1. Thomas Goda & Alejandro Torres, 2013. "Overvaluation of the real exchange rate and the Dutch Disease: the Colombian case," DOCUMENTOS DE TRABAJO CIEF 010930, UNIVERSIDAD EAFIT.
  2. Chance Mwabutwa & Nicola Viegi & Manoel Bittencourt, 2012. "Monetary Policy Response to Capital Inflows in Form of Foreign Aid in Malawi," Working Papers 201232, University of Pretoria, Department of Economics.

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