IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

How Is Foreign Aid Spent? Evidence from a Natural Experiment

  • Eric Werker
  • Faisal Z. Ahmed
  • Charles Cohen
Registered author(s):

    We use oil price fluctuations to test the impact of transfers from wealthy OPEC nations to their poorer Muslim allies. The instrument identifies plausibly exogenous variation in foreign aid. We investigate how aid is spent by tracking its short-run effect on aggregate demand, national accounts, and balance of payments. Aid affects most components of GDP though it has no statistically identifiable impact on prices or economic growth. Much aid is consumed, primarily in the form of imported noncapital goods. Aid substitutes for domestic savings, has no effect on the financial account, and leads to unaccounted capital flight. (JEL F35, O19)

    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.aeaweb.org/articles.php?doi=10.1257/mac.1.2.225
    Download Restriction: no

    File URL: http://www.aeaweb.org/aej/mac/data/2007-0057_data.zip
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.

    Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

    Volume (Year): 1 (2009)
    Issue (Month): 2 (July)
    Pages: 225-44

    as
    in new window

    Handle: RePEc:aea:aejmac:v:1:y:2009:i:2:p:225-44
    Note: DOI: 10.1257/mac.1.2.225
    Contact details of provider: Web page: https://www.aeaweb.org/aej-macro
    Email:


    More information through EDIRC

    Order Information: Web: https://www.aeaweb.org/subscribe.html

    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. Alberto Alesina & David Dollar, 1998. "Who Gives Foreign Aid to Whom and Why?," NBER Working Papers 6612, National Bureau of Economic Research, Inc.
    2. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    3. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
    4. Raghuram Rajan & Arvind Subramanian, 2005. "Aid and Growth; What Does the Cross-Country Evidence Really Show?," IMF Working Papers 05/127, International Monetary Fund.
    5. Eric Neumayer, 2003. "What Factors Determine the Allocation of Aid by Arab Countries and Multilateral Agencies?," Journal of Development Studies, Taylor & Francis Journals, vol. 39(4), pages 134-147.
    6. Robert C. Feenstra & Robert E. Lipsey & Haiyan Deng & Alyson C. Ma & Hengyong Mo, 2005. "World Trade Flows: 1962-2000," NBER Working Papers 11040, National Bureau of Economic Research, Inc.
    7. repec:wbk:wbpubs:12426 is not listed on IDEAS
    8. Pinto, Brian, 1989. "Black Market Premia, Exchange Rate Unification, and Inflation in Sub-Saharan Africa," World Bank Economic Review, World Bank Group, vol. 3(3), pages 321-38, September.
    Full references (including those not matched with items on IDEAS)

    This item is featured on the following reading lists or Wikipedia pages:

    1. How Is Foreign Aid Spent? Evidence from a Natural Experiment (AEJ:MA 2009) in ReplicationWiki

    When requesting a correction, please mention this item's handle: RePEc:aea:aejmac:v:1:y:2009:i:2:p:225-44. 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: (Jane Voros)

    or (Michael P. Albert)

    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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.