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Aid, non-traded goods, and growth

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  • Takumi Naito

Abstract

We examine the effects of foreign aid in a small recipient country with two traded goods, one non-traded good, and two factors. Learning by doing and intersectoral knowledge spillovers contribute to endogenous growth. We obtain two main results. First, a permanent increase in untied aid raises (or lowers) the growth rate if and only if the non-traded good is more capital intensive (or effective labour intensive) than the operating traded good. Second, a permanent increase in untied aid raises welfare if the non-traded good is more capital intensive than the operating traded good; otherwise, it may raise or lower welfare.

Suggested Citation

  • Takumi Naito, 2010. "Aid, non-traded goods, and growth," Canadian Journal of Economics, Canadian Economics Association, vol. 43(2), pages 423-439, May.
  • Handle: RePEc:cje:issued:v:43:y:2010:i:2:p:423-439
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    More about this item

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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