Aid, disbursement delays, and the real exchange rate
AbstractAid donors and recipients have long been concerned that aid inflows may lead to an appreciation of the real exchange rate and an associated loss of competitiveness. This paper provides new evidence of the dynamic effects of aid on the real exchange rate, using an identification strategy that exploits the long delays between the approval of aid projects and the subsequent disbursements on them. These disbursement delays enable the isolation of a source of variation in aid inflows that is uncorrelated with contemporaneous macroeconomic shocks that may drive both aid and the real exchange rate. Using this predetermined component of aid as an instrument, there is little evidence that aid inflows lead to significant real exchange rate appreciations.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 6501.
Date of creation: 01 Jun 2013
Date of revision:
Macroeconomic Management; Debt Markets; Economic Stabilization; Emerging Markets; Economic Theory&Research;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-05 (All new papers)
- NEP-DEV-2013-07-05 (Development)
- NEP-MAC-2013-07-05 (Macroeconomics)
- NEP-PPM-2013-07-05 (Project, Program & Portfolio Management)
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