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The Fiscal Effects of Aid in Ghana

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Author Info

  • Osei, Robert
  • Morrissey, Oliver
  • Lloyd, Tim

Abstract

An important feature of aid to developing countries is that it is given to the government. As a result, aid should be expected to affect fiscal behaviour, although theory and existing evidence is ambiguous regarding the nature of these effects. This paper applies techniques developed in the 'macroeconometrics' literature to estimate the dynamic linkages between aid and fiscal aggregates. Vector autoregressive methods are applied to 34 years of annual data in Ghana to model the effect of aid on fiscal behaviour. Results suggest that aid to Ghana has been associated with reduced domestic borrowing and increased tax effort, combining to increase public spending. This constructive use of aid to maintain fiscal balance is evident since the mid-1980s, following Ghana's structural adjustment programme. The paper provides evidence that aid has been associated with improved fiscal performance in Ghana, implying that the aid has been used sensibly (at least in fiscal terms). Copyright © 2005 John Wiley & Sons, Ltd.

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File URL: http://www.wider.unu.edu/stc/repec/pdfs/rp2005/rp2005-61.pdf
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Bibliographic Info

Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Papers with number RP2005/61.

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Length: 20 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:unu:wpaper:rp2005-61

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Related research

Keywords: aid; fungibility; fiscal response; impulse response;

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References

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  1. Addison, Tony & Osei, Robert, 2001. "Taxation and Fiscal Reform in Ghana," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  2. Ericsson, Neil R & Hendry, David F & Mizon, Grayham E, 1998. "Exogeneity, Cointegration, and Economic Policy Analysis," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 370-87, October.
  3. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
  4. Gomanee, Karuna & Morrissey, Oliver & Mosley, Paul & Verschoor, Arjan, 2005. "Aid, Government Expenditure, and Aggregate Welfare," World Development, Elsevier, vol. 33(3), pages 355-370, March.
  5. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  6. Mark McGillivray & Oliver Morrissey, 2000. "Aid fungibility in Assessing Aid: red herring or true concern?," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 413-428.
  7. Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
  8. Lutkepohl, Helmut & Reimers, Hans-Eggert, 1992. "Impulse response analysis of cointegrated systems," Journal of Economic Dynamics and Control, Elsevier, vol. 16(1), pages 53-78, January.
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Citations

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Cited by:
  1. Lukasz Marc, 2012. "New Evidence on Fungibility at the Aggregate Level," Tinbergen Institute Discussion Papers 12-083/2, Tinbergen Institute.
  2. Oliver Morrissey, 2011. "Comment on Mosley (2010): Trust and conditionality, or can the World Bank Leopard change its spots," The Review of International Organizations, Springer, vol. 6(3), pages 453-456, September.
  3. Oliver Morrissey, & Olaf Islei, & Daniel M'Amanja, . "Aid Loans versus Aid Grants: Are the Effects Different?," Discussion Papers 06/07, University of Nottingham, CREDIT.
  4. Gravier-Rymaszewska, Joanna, 2012. "How Aid Supply Responds to Economic Crises: A Panel VAR Approach," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  5. Osei, Robert Darko, 2012. "Aid, Growth and Private Capital Flows to Ghana," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  6. José Antonio Alonso & Carlos Garcimartín, . "Does Aid Hinder Tax Efforts? More Evidence," Discussion Papers 11/04, University of Nottingham, CREDIT.
  7. International Monetary Fund, 2012. "Mobilizing Revenue in Sub-Saharan Africa: Empirical Norms and Key Determinants," IMF Working Papers 12/108, International Monetary Fund.
  8. Pedro M. G. Martins, 2010. "Fiscal Dynamics in Ethiopia: The Cointegrated VAR Model with Quarterly Data," Working Paper Series 0910, Department of Economics, University of Sussex.
  9. Danny Cassimon & Bjorn Van campenhout, 2008. "Comparative Fiscal Response Effects Of Debt Relief: An Application To African Hipcs," South African Journal of Economics, Economic Society of South Africa, vol. 76(3), pages 427-442, 09.
  10. Morrissey, Oliver, 2012. "Aid and Government Fiscal Behaviour: What Does the Evidence Say?," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  11. Patrick Guillaumont, 2011. "Aid effectiveness for poverty reduction:macroeconomic overview and emerging issues," Working Papers halshs-00554285, HAL.
  12. Henrik Hansen & Derek Headey, 2010. "The Short-Run Macroeconomic Impact of Foreign Aid to Small States: An Agnostic Time Series Analysis," The Journal of Development Studies, Taylor and Francis Journals, vol. 46(5), pages 877-896.
  13. Dierk Herzer & Oliver Morrissey, . "The Long-Run Effect of Aid on Domestic Output," Discussion Papers 09/01, University of Nottingham, CREDIT.
  14. Pedro M G Martins, . "Fiscal Dynamics in Ethiopia: A Cointegrated VAR Model with Quarterly Data," Discussion Papers 10/05, University of Nottingham, CREDIT.
  15. Robert Gillanders, 2011. "The Effects of Foreign Aid in Sub-Saharan Africa," Working Papers 201116, School Of Economics, University College Dublin.

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