Aid and Dutch Disease in Sub-Saharan Africa
AbstractInternational aid has an ambiguous effect on the macroeconomy of the recipient country. To the extent that aid raises consumer expenditure, there will be some real exchange rate appreciation and a shift of resources away from traded goods production and into non-traded goods production. However, aid for investment in the traded goods sector can mitigate this effect. Also, a relatively high level of productivity in the non-traded goods sector combined with a high level of investment will tend to depreciate the real exchange rate. We examine aid inflows in 26 sub-Saharan African countries, and find a variety of macroeconomic responses. Some of the variation in the responses can be explained by variation in observable country characteristics; this has implications for donor policy.
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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 WP2012/26.
Date of creation: 2012
Date of revision:
aid; Dutch disease; Africa;
Other versions of this item:
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- O5 - Economic Development, Technological Change, and Growth - - Economywide Country Studies
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