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Aid Volatility, Policy and Development

  • Hudson, John
  • Mosley, Paul

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.

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Article provided by Elsevier in its journal World Development.

Volume (Year): 36 (2008)
Issue (Month): 10 (October)
Pages: 2082-2102

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Handle: RePEc:eee:wdevel:v:36:y:2008:i:10:p:2082-2102
Contact details of provider: Web page: http://www.elsevier.com/locate/worlddev

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  1. Eifert, Benn & Gelb, Alan, 2005. "Improving the dynamics of aid : towards more predictable budget support," Policy Research Working Paper Series 3732, The World Bank.
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  10. Robert Lensink & Oliver Morrissey, 2000. "Aid instability as a measure of uncertainty and the positive impact of aid on growth," Journal of Development Studies, Taylor & Francis Journals, vol. 36(3), pages 31-49.
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