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Enhancing Effective Utilization of Aid in Fragile States

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  • Gupta, Sanjeev
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    Abstract

    This paper explores the macroeconomic implications of aid flows in countries with weak institutions. It argues that these countries should take into account their overall macroeconomic position, their capacity to absorb aid at the sectoral and subnational levels, and the strength of their fiscal institutions in deciding how much and how fast to spend aid. These considerations may warrant a gradual use of aid, except when aid is provided for humanitarian purposes. There is some basis for frontloading spending for countries emerging from a conflict, otherwise fragile states should seek to smoothen their spending against the background of aid volatility and uncertainty.

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    File URL: http://www.wider.unu.edu/stc/repec/pdfs/rp2008/rp2008-07.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 RP2008/07.

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    Length: 18 pages
    Date of creation: 2008
    Date of revision:
    Handle: RePEc:unu:wpaper:rp2008-07

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    Keywords: aid absorption; aid flows; institutions; post-conflict;

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    1. Andrew Berg & Mumtaz Hussain & Shaun K. Roache & Amber Mahone & Tokhir N. Mirzoev & Shekhar Aiyar, 2007. "The Macroeconomics of Scaling Up Aid," IMF Occasional Papers 253, International Monetary Fund.
    2. Elbadawi, Ibrahim A. & Kaltani, Linda & Schmidt-Hebbel, Klaus, 2007. "Post-conflict aid, real exchange rate adjustment, and catch-up growth," Policy Research Working Paper Series 4187, The World Bank.
    3. Dani Rodrik, 2000. "Institutions for High-Quality Growth: What They are and How to Acquire Them," NBER Working Papers 7540, National Bureau of Economic Research, Inc.
    4. Christopher Adam & Paul Collier & Victor A.B. Davies, 2008. "Postconflict Monetary Reconstruction," World Bank Economic Review, World Bank Group, vol. 22(1), pages 87-112, January.
    5. Rina Bhattacharya & Benedict J. Clements & Sanjeev Gupta & Shamsuddin Tareq & Alex Segura-Ubiergo & Todd D. Mattina, 2005. "Rebuilding Fiscal Institutions in Postconflict Countries," IMF Occasional Papers 247, International Monetary Fund.
    6. Collier, Paul & Hoeffler, Anke, 2002. "Aid, policy, and growth in post-conflict societies," Policy Research Working Paper Series 2902, The World Bank.
    7. Heller, Peter S. & Katz, Menachem & Debrun, Xavier & Thomas, Theo & Koranchelian, Taline & Adenauer, Isabell, 2006. "Making Fiscal Space Happen! Managing Fiscal Policy in a World of Scaled-Up Aid," Working Paper Series RP2006/125, World Institute for Development Economic Research (UNU-WIDER).
    8. Peter S. Heller & Menachem Katz & Xavier Debrun & Theo Thomas & Taline Koranchelian & Isabell Adenauer, 2006. "Making Fiscal Space Happen!," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 7(3), pages 89-132, July.
    9. Davies, Victor A. B., 2007. "Capital flight and war," Policy Research Working Paper Series 4210, The World Bank.
    10. Addison, Tony & Chowdhury, Abdur R. & Murshed, S. Mansoob, 2002. "By How Much Does Conflict Reduce Financial Development?," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
    11. Gupta, Sanjeev & Clements, Benedict & Bhattacharya, Rina & Chakravarti, Shamit, 2004. "Fiscal consequences of armed conflict and terrorism in low- and middle-income countries," European Journal of Political Economy, Elsevier, vol. 20(2), pages 403-421, June.
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