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Can Foreign Aid Accelerate Stabilisation?


  • Casella, Alessandra
  • Eichengreen, Barry


This paper studies the effect of foreign aid on economic stabilization. Following Alberto Alesina and Allan Drazen (1991), the authors model the delay in stabilizing as the result of a distributional struggle. Since the delay is used to signal each faction's strength, the effect of the transfer depends on the role it plays in the release of information. The authors show that this role depends on the timing of the transfer: foreign aid decided and transferred sufficiently early into the game leads to earlier stabilization; but aid decided or transferred too late is destabilizing and encourages further postponement of reforms. Copyright 1996 by Royal Economic Society.

Suggested Citation

  • Casella, Alessandra & Eichengreen, Barry, 1996. "Can Foreign Aid Accelerate Stabilisation?," Economic Journal, Royal Economic Society, vol. 106(436), pages 605-619, May.
  • Handle: RePEc:ecj:econjl:v:106:y:1996:i:436:p:605-19

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    References listed on IDEAS

    1. Eichengreen, Barry & Uzan, Marc, 1992. "The Marshall Plan: Economic Effects and Implications for Eastern Europe and the Former USSR," CEPR Discussion Papers 638, C.E.P.R. Discussion Papers.
    2. Fernandez, Raquel & Glazer, Jacob, 1991. "Striking for a Bargain between Two Completely Informed Agents," American Economic Review, American Economic Association, vol. 81(1), pages 240-252, March.
    3. Anat R. Admati & Motty Perry, 1987. "Strategic Delay in Bargaining," Review of Economic Studies, Oxford University Press, vol. 54(3), pages 345-364.
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    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F35 - International Economics - - International Finance - - - Foreign Aid


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