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Aid and Dutch Disease in Sub-Saharan Africa

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Author Info

  • 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," The Journal of Development Studies, Taylor and Francis Journals, vol. 46(10), pages 1749-1766.
  2. Rajan, Raghuram G. & Subramanian, Arvind, 2011. "Aid, Dutch disease, and manufacturing growth," Journal of Development Economics, Elsevier, vol. 94(1), pages 106-118, January.
  3. 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.
  4. Joong Shik Kang & Alessandro Prati & Alessandro Rebucci, 2010. "Aid, Exports, and Growth: A Time-Series Perspective on the Dutch Disease Hypothesis," Research Department Publications 4678, Inter-American Development Bank, Research Department.
  5. Thierry Tressel & Alessandro Prati, 2006. "Aid Volatility and Dutch Disease: Is There a Role for Macroeconomic Policies?," IMF Working Papers 06/145, International Monetary Fund.
  6. Christopher Adam & David Bevan, 2004. "Aid, Public Expenditure and Dutch Disease," Development and Comp Systems 0409027, EconWPA.
  7. Yves Bourdet & Hans Falck, 2006. "Emigrants' remittances and Dutch Disease in Cape Verde," International Economic Journal, Korean International Economic Association, vol. 20(3), pages 267-284.
  8. 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.
  9. Perotti, Roberto & Alesina, Alberto, 1996. "Income Distribution, Political Instability, and Investment," Scholarly Articles 4553018, Harvard University Department of Economics.
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Cited by:
  1. Manoel Bittencourt & Chance Mwabutwa & Nicola Viegi, 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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