Advanced Search
MyIDEAS: Login

The Macroeconomic Management of Increased Aid: Policy Lessons from Recent Experience

Contents:

Author Info

  • Aiyar, Shekhar
  • Berg, Andrew
  • Hussain, Mumtaz

Abstract

This paper investigates the macroeconomic challenges created by a surge in aid inflows. It develops an analytical framework for examining possible policy responses to increased aid, in terms of absorption and spending of aid?where the central bank controls absorption through monetary policy and the sale of foreign exchange and the fiscal authority controls spending. Different combinations of absorption and spending lead to different macroeconomic consequences. Evidence from five countries that recently experienced an aid surge (Ethiopia, Ghana, Tanzania, Mozambique and Uganda) shows no support for aid-related real exchange rate appreciation in these countries, but indicates that the fear of Dutch disease played an important part in the policy reaction to aid surges. Fiscal and monetary authorities should coordinate their responses to an aid surge, because an uncoordinated response?typically when fiscal authority wants to spend aid while the central bank wants to avoid exchange rate appreciation?can have serious negative macroeconomic consequences.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.wider.unu.edu/stc/repec/pdfs/rp2008/rp2008-79.pdf
Download Restriction: no

Bibliographic Info

Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number RP2008/79.

as in new window
Length: 22 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:unu:wpaper:rp2008-79

Contact details of provider:
Postal: Katajanokanlaituri 6B, 00160 Helsinki
Phone: +358-9-6159911
Fax: +358-9-61599333
Email:
Web page: http://www.wider.unu.edu/
More information through EDIRC

Related research

Keywords: aid; exchange rate; aid absorption; policy;

Other versions of this item:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Christopher Adam & Stephen O’Connell & Edward Buffie, 2007. "Monetary Policy Rules For Manging Aid Surges In Africa," WEF Working Papers 0016, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
  2. McGillivray, Mark & Morrissey, Oliver, 2001. "Fiscal Effects of Aid," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  3. Andrew Berg & Mumtaz Hussain & Shaun K. Roache & Amber Mahone & Tokhir N. Mirzoev & Shekhar Aiyar, 2007. "The Macroeconomics of Scaling Up Aid: Lessons from Recent Experience," IMF Occasional Papers 253, International Monetary Fund.
  4. Ale Bulir & A. Javier Hamann, 2003. "Aid Volatility: An Empirical Assessment," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 4.
  5. Philip R. Lane & Gian Maria Milesi-Ferretti, 2000. "The Transfer Problem Revisited: Net Foreign Assets and Real Exchange Rates," Working Papers 062000, Hong Kong Institute for Monetary Research.
  6. Martin Brownbridge & Emmanuel Tumusiime-Mutebile, 2007. "Aid and Fiscal Deficits: Lessons from Uganda on the Implications for Macroeconomic Management and Fiscal Sustainability," Development Policy Review, Overseas Development Institute, vol. 25(2), pages 193-213, 03.
  7. Edward Buffie & Christopher Adam & Stephen O'Connell & Catherine Pattillo, 2004. "Exchange Rate Policy and the Management of Official and Private Capital Flows in Africa," IMF Staff Papers, Palgrave Macmillan, vol. 51(s1), pages 126-160, June.
  8. Bulír, Ales & Hamann, A. Javier, 2008. "Volatility of Development Aid: From the Frying Pan into the Fire?," World Development, Elsevier, vol. 36(10), pages 2048-2066, October.
  9. Timothy D. Lane & Leslie Lipschitz & Cristina Arellano & Ales Bulir, 2005. "The Dynamic Implications of Foreign Aid and Its Variability," IMF Working Papers 05/119, International Monetary Fund.
  10. Alexander Pivovarsky & Benedict J. Clements & Sanjeev Gupta & Erwin Tiongson, 2003. "Foreign Aid and Revenue Response: Does the Composition of Aid Matter?," IMF Working Papers 03/176, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Pedro M G Martins, . "Aid Absorption and Spending in Africa: A Panel Cointegration Approach," Discussion Papers 10/06, University of Nottingham, CREDIT.
  2. Bwire, Thomas & Morrissey, Oliver & Lloyd, Tim, 2013. "A timeseries analysis of the impact of foreign aid on central government.s fiscal budget in Uganda," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  3. Chance Mwabutwa & Nicola Viegi & Manoel Bittencourt, 2012. "Monetary Policy Response to Capital Inflows in Form of Foreign Aid in Malawi," Working Papers 201232, University of Pretoria, Department of Economics.
  4. Bwire, Thomas & Morrissey, Oliver & Lloyd, Tim, 2013. "Foreign aid, public sector and private consumption: A cointegrated vector autoregressive approach," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  5. Jean-Louis Combes & Patrick Plane & Tidiane Kinda, 2011. "Capital Flows, Exchange Rate Flexibility, and the Real Exchange Rate," IMF Working Papers 11/9, International Monetary Fund.
  6. Pedro M. G. Martins, 2010. "Aid Absorption and Spending in Africa: A Panel Cointegration Approach," Working Paper Series 1010, Department of Economics, University of Sussex.
  7. 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.
  8. Jarotschkin, Alexandra & Kraay, Aart, 2013. "Aid, disbursement delays, and the real exchange rate," Policy Research Working Paper Series 6501, The World Bank.
  9. Pedro M G Martins, . "Fiscal Dynamics in Ethiopia: A Cointegrated VAR Model with Quarterly Data," Discussion Papers 10/05, University of Nottingham, CREDIT.
  10. Andrea F. Presbitero, 2012. "Domestic debt in Low-Income Countries," Economics Bulletin, AccessEcon, vol. 32(2), pages 1099-1112.
  11. Andrea Filippo Presbitero, 2013. "Aid and Vulnerability," Mo.Fi.R. Working Papers 88, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:unu:wpaper:rp2008-79. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bruck Tadesse).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.