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Foreign Aid, Infrastructure Development and Welfare: An Intertemporal Analysis

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  • Slobodan Djajić

Abstract

The author examines the welfare implications of foreign aid within the framework of a two-period, two-country model of international trade. It is up to the donor country to decide what fraction of any given aid package is to be made available for the recipient's immediate consumption in period one, and what part should be allocated for investment in infrastructure that expands the recipient's production possibilities in period two. The focus of the analysis is on the conditions under which both countries agree or disagree on the manner in which the aid funds should be divided between the two options. Copyright 2009 The Author. Journal compilation 2009 Blackwell Publishing Ltd.

Suggested Citation

  • Slobodan Djajić, 2009. "Foreign Aid, Infrastructure Development and Welfare: An Intertemporal Analysis," Review of Development Economics, Wiley Blackwell, vol. 13(s1), pages 393-402, August.
  • Handle: RePEc:bla:rdevec:v:13:y:2009:i:s1:p:393-402
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    References listed on IDEAS

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    1. Hatzipanayotou, Panos & Michael, Michael S., 1995. "Foreign aid and public goods," Journal of Development Economics, Elsevier, vol. 47(2), pages 455-467, August.
    2. Lahiri, Sajal & Raimondos-Moller, Pascalis & Wong, Kar-yiu & Woodland, Alan D., 2002. "Optimal foreign aid and tariffs," Journal of Development Economics, Elsevier, vol. 67(1), pages 79-99, February.
    3. Kemp, Murray C & Kojima, Shoichi, 1985. "Tied Aid and the Paradoxes of Donor-Enrichment and Recipient-Impoverishment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 721-729, October.
    4. Pack, Howard & Pack, Janet Rothenberg, 1990. "Is Foreign Aid Fungible? The Case of Indonesia," Economic Journal, Royal Economic Society, vol. 100(399), pages 188-194, March.
    5. Pack, Howard & Pack, Janet Rothenberg, 1993. "Foreign Aid and the Question of Fungibility," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 258-265, May.
    6. Brecher, Richard A. & Bhagwati, Jagdish N., 1982. "Immiserizing transfers from abroad," Journal of International Economics, Elsevier, vol. 13(3-4), pages 353-364, November.
    7. George Mavrotas, 2005. "Aid heterogeneity: looking at aid effectiveness from a different angle," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(8), pages 1019-1036.
    8. Kemp, Murray C. & Abe, Kenzo, 1994. "The transfer problem in the context of public goods," Economics Letters, Elsevier, vol. 45(2), pages 223-226, June.
    9. Papanek, Gustav F, 1973. "Aid, Foreign Private Investment, Savings, and Growth in Less Developed Countries," Journal of Political Economy, University of Chicago Press, vol. 81(1), pages 120-130, Jan.-Feb..
    10. Schweinberger, A G, 1990. "On the Welfare Effects of Tied Aid," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 457-462, May.
    11. Khilji, Nasir M. & Zampelli, Ernest M., 1991. "The fungibility of US assistance to developing countries and the impact on recipient expanditures: a case study of Pakistan," World Development, Elsevier, vol. 19(8), pages 1095-1105, August.
    12. Kemp, Murray C. & Wong, Kar-yiu, 1993. "Paradoxes associated with the administration of foreign aid," Journal of Development Economics, Elsevier, vol. 42(1), pages 197-204, October.
    13. Schweinberger, A. G., 2002. "Foreign aid, tariffs and nontraded private or public goods," Journal of Development Economics, Elsevier, vol. 69(1), pages 255-275, October.
    14. Lahiri, Sajal & Raimondos-Moller, Pascalis, 1997. "On the tying of aid to tariff reform," Journal of Development Economics, Elsevier, vol. 54(2), pages 479-491, December.
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    Cited by:

    1. Stephen M. Miller & Kyriakos C. Neanidis, 2012. "Demographic Transition and Economic Welfare: The Role of Humanitarian Aid," Working papers 2012-06, University of Connecticut, Department of Economics.

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