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Macroeconomic aspects of the effectiveness of foreign aid: On the two-gap model, home goods disequilibrium and real exchange rate misalignment

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  • Wijnbergen, Sweder Van

Abstract

We construct an open economy disequilibrium model to assess the welfare effects of aid in different macroeconomic regimes. Aid is shown to have different effects in different unemployment regimes because it increases the social costs of wage-price rigidities in the classical regime but decreases them in the Keynesian unemployment regime. A link is made with the two-gap model, but we highlight the role of real exchange rate misalignment (failure to clear the NT goods market).
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  • Wijnbergen, Sweder Van, 1986. "Macroeconomic aspects of the effectiveness of foreign aid: On the two-gap model, home goods disequilibrium and real exchange rate misalignment," Journal of International Economics, Elsevier, vol. 21(1-2), pages 123-136, August.
  • Handle: RePEc:eee:inecon:v:21:y:1986:i:1-2:p:123-136
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    Cited by:

    1. Sebastian Edwards, 2015. "Economic Development and the Effectiveness of Foreign Aid: A Historical Perspective," Kyklos, Wiley Blackwell, vol. 68(3), pages 277-316, August.
    2. James McHugh & Theodora Kosma & Dimitri G Demekas, 2002. "The Economics of Post Conflict Aid," IMF Working Papers 02/198, International Monetary Fund.
    3. Rajan, Raghuram G. & Subramanian, Arvind, 2011. "Aid, Dutch disease, and manufacturing growth," Journal of Development Economics, Elsevier, vol. 94(1), pages 106-118, January.
    4. Alexandra Jarotschkin & Aart Kraay, 2016. "Aid, Disbursement Delays, and the Real Exchange Rate," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(2), pages 217-238, June.
    5. Nuno Baetas da Silva & João Sousa Andrade & António Portugal Duarte, 2016. "Alternative Sources of Dutch Disease: A Survey of the Literature," GEMF Working Papers 2016-10, GEMF, Faculty of Economics, University of Coimbra.
    6. Laplagne, Patrick & Treadgold, Malcolm & Baldry, Jonathan, 2001. "A Model of Aid Impact in Some South Pacific Microstates," World Development, Elsevier, vol. 29(2), pages 365-383, February.
    7. Sin-Yu Ho, 2018. "Analysing the sources of growth in an emerging market economy: the Thailand experience," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 10(4), pages 340-359.
    8. Richard Chisik & Nazanin Behzadan, 2016. "Are Aid and Remittances Similar in Generating the Dutch Disease?," Working Papers 064, Ryerson University, Department of Economics.
    9. Pedro M. G. Martins, 2010. "Do Capital Inflows Hinder Competitiveness? The Real Exchange Rate in Ethiopia," Working Paper Series 1110, Department of Economics, University of Sussex Business School.
    10. Pedro Martins, 2011. "Do large capital inflows hinder competitiveness? The Dutch disease in Ethiopia," Post-Print hal-00748067, HAL.
    11. Pedro M G Martins, 2010. "Capital Inflows Hinder Competitiveness? The Real Exchange Rate in Ethiopia," Discussion Papers 10/07, University of Nottingham, CREDIT.
    12. Hühne, Philipp & Meyer, Birgit & Nunnenkamp, Peter, 2014. "Aid for trade: Assessing the effects on recipient exports of manufactures and primary commodities to donors and non-donors," Kiel Working Papers 1953, Kiel Institute for the World Economy (IfW).
    13. Cassimon, D & Renard, Robrecht, 2003. "Fiscal ownership and the role of donors: will HIPC matter?," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34940, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    14. Jansen, Karel, 1995. "The macroeconomic effects of direct foreign investment: The case of Thailand," World Development, Elsevier, vol. 23(2), pages 193-210, February.

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