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Dynamic aid allocation

  • Carter, Patrick
  • Postel-Vinay, Fabien
  • Temple, Jonathan

This paper introduces a framework for studying the optimal dynamic allocation of foreign aid among multiple recipients. We pose the problem as one of weighted global welfare maximization. A donor in the North chooses an optimal path for international transfers, anticipating that consumption and investment decisions will be made by optimizing households in the South, and accounting for limits in the extent to which recipients can effectively absorb aid. We present quantitative results on optimal aid policy by applying our approach to a neoclassical growth model, where the scope for aid-funded growth is determined by the recipients' distance from steady-state.

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File URL: http://www.sciencedirect.com/science/article/pii/S0022199614001263
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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 95 (2015)
Issue (Month): 2 ()
Pages: 291-304

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Handle: RePEc:eee:inecon:v:95:y:2015:i:2:p:291-304
DOI: 10.1016/j.jinteco.2014.11.005
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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