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Aid Volatility, Policy and Development

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  • Hudson, John
  • Mosley, Paul

Abstract

Summary We build on Bulir and Hamann's analysis of aid volatility [Bulir, A., & Hamann, J. (2003). Aid volatility: An empirical assessment. IMF Staff Papers, 50(1), 64-89; Bulir, A., & Hamann, J. (2008) Volatility of development aid: From the frying pan into the fire? Washington DC: IMF, paper submitted to this Special Section], showing that the conclusions reached depend on the dataset used. Their argument that the poorest countries have the highest volatility appears not to be correct. The impact of volatility on growth is negative overall, but differs between positive and negative volatility. The mix between "responsive" components of aid, for example, programme aid, and "proactive" components, for example, technical assistance, is important. Finally, we conclude that measures which increase trust between donor and recipient, and reductions in the degree of donor "oligopoly," reduce aid volatility without obviously reducing its effectiveness.

Suggested Citation

  • Hudson, John & Mosley, Paul, 2008. "Aid Volatility, Policy and Development," World Development, Elsevier, vol. 36(10), pages 2082-2102, October.
  • Handle: RePEc:eee:wdevel:v:36:y:2008:i:10:p:2082-2102
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    References listed on IDEAS

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    Keywords

    aid volatility disasters trust upside and downside volatility;

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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