The Short-Run Macroeconomic Impact of Foreign Aid to Small States: An Agnostic Timeseries Analysis
AbstractThis study econometrically evaluates the short-run impact of aid in small developing countries (SDCs) by applying a VAR model to study aid's impact on 'absorption' (increasing import demand) and 'spending' (increased domestic demand) across countries. Whilst our approach allows parameters to vary across countries, the focus is on average country effects and differential effects within certain subgroups of countries. In particular, we find substantial differences between 'aid-dependent' SDCs and other SDCs which are more dependent on mineral resources and financial services. In the latter group, aid seems to be neither absorbed nor spent in any systematic fashion. But in the aid-dependent SDCs, aid receipts seem to be used more in the textbook 'absorb and spend' fashion.
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Bibliographic InfoPaper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number UNU-WIDER Research Paper RP2007/38.
Length: 24 pages
Date of creation: 2007
Date of revision:
foreign aid; small developing countries; macroeconomic adjustment; absorption; spending; VAR models; panel data;
Other versions of this item:
- Henrik Hansen & Derek Headey, 2010. "The Short-Run Macroeconomic Impact of Foreign Aid to Small States: An Agnostic Time Series Analysis," Journal of Development Studies, Taylor & Francis Journals, vol. 46(5), pages 877-896.
- Hansen, Henrik & Headey, Derek, 2009. "The short-run macroeconomic impact of foreign aid to small states: An agnostic time series analysis," IFPRI discussion papers 863, International Food Policy Research Institute (IFPRI).
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