Aid and Dutch Disease in the South Pacific
AbstractThe 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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Bibliographic InfoPaper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number UNU-WIDER Research Paper RP2007/50.
Length: 16 pages
Date of creation: 2007
Date of revision:
aid; Dutch disease; South Pacific;
Other versions of this item:
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- O56 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Oceania
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