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Aid and Dutch Disease in the South Pacific

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  • Fielding, David

Abstract

The impact of aid inflows on relative prices and output is ambiguous. Aid inflows that increase domestic expenditure are likely to cause real exchange rate appreciation, ceteris paribus. However, if this expenditure raises the capital stock in the traded goods sector, then output in this sector might not contract, at least in the steady state. Moreover, if investment in the nontraded goods sector is relatively high and/or productive, then there is not necessarily any real exchange rate appreciation in the steady state. We use time-series data to examine the impact of aid inflows on output and real exchange rates in ten South Pacific island states, and find aid inflows to produce a variety of outcomes in economies of different kinds.

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File URL: http://www.wider.unu.edu/stc/repec/pdfs/rp2007/rp2007-50.pdf
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Bibliographic Info

Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number UNU-WIDER Research Paper RP2007/50.

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Length: 16 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:unu:wpaper:rp2007-50

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Keywords: aid; Dutch disease; South Pacific;

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  1. Elbadawi, Ibrahim A, 1999. "External Aid: Help or Hindrance to Export Orientation in Africa?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 8(4), pages 578-616, December.
  2. 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, vol. 20(2), pages 261-290.
  3. Gylfason, Thorvaldur & Herbertsson, Tryggvi Thor & Zoega, Gylfi, 1997. "A Mixed Blessing: Natural Resources and Economic Growth," CEPR Discussion Papers 1668, C.E.P.R. Discussion Papers.
  4. Christopher Adam & David Bevan, 2003. "Aid, Public Expenditure and Dutch Disease," Economics Series Working Papers WPS/2003-02, University of Oxford, Department of Economics.
  5. Yves Bourdet & Hans Falck, 2006. "Emigrants' remittances and Dutch Disease in Cape Verde," International Economic Journal, Taylor & Francis Journals, vol. 20(3), pages 267-284.
  6. Nyoni, Timothy S., 1998. "Foreign Aid and Economic Performance in Tanzania," World Development, Elsevier, vol. 26(7), pages 1235-1240, July.
  7. 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.
  8. Laplagne, Patrick & Treadgold, Malcolm & Baldry, Jonathan, 2001. "A Model of Aid Impact in Some South Pacific Microstates," World Development, Elsevier, vol. 29(2), pages 365-383, February.
  9. Thierry Tressel & Alessandro Prati, 2006. "Aid Volatility and Dutch Disease," IMF Working Papers 06/145, International Monetary Fund.
  10. Christopher Adam & Stephen A O`Connell, 2000. "Aid versus Trade Revisited," Economics Series Working Papers WPS/2000-19, University of Oxford, Department of Economics.
  11. Corden, W M, 1984. "Booming Sector and Dutch Disease Economics: Survey and Consolidation," Oxford Economic Papers, Oxford University Press, vol. 36(3), pages 359-80, November.
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Cited by:
  1. David Fielding & Fred Gibson, 2013. "Aid and Dutch Disease in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 22(1), pages 1-21, January.
  2. Ben Naceur, Sami & Bakardzhieva, Damyana & Kamar, Bassem, 2012. "Disaggregated Capital Flows and Developing Countries’ Competitiveness," World Development, Elsevier, vol. 40(2), pages 223-237.

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