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Aid, Real Exchange Rate Misalignment, and Economic Growth in Sub-Saharan Africa

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  • Elbadawi, Ibrahim A.
  • Kaltani, Linda
  • Soto, Raimundo

Abstract

Generating sustained growth in Sub-Saharan Africa (SSA) is one of the most pressing challenges in global development. As the region clearly needs assistance to jump start its development, foreign aid becomes crucial. This paper investigates the nexus between foreign aid, exchange rate misalignment, and economic growth in SSA. Contrary to conventional wisdom, we do not find aid to be a major contributor to exchange rate overvaluation. In addition, we found that aid fosters growth but its impact is weaker in countries with overvalued exchange rates. Furthermore, we found that overvaluation reduces growth but its negative effect is ameliorated by financial development.

Suggested Citation

  • Elbadawi, Ibrahim A. & Kaltani, Linda & Soto, Raimundo, 2012. "Aid, Real Exchange Rate Misalignment, and Economic Growth in Sub-Saharan Africa," World Development, Elsevier, vol. 40(4), pages 681-700.
  • Handle: RePEc:eee:wdevel:v:40:y:2012:i:4:p:681-700
    DOI: 10.1016/j.worlddev.2011.09.012
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    Citations

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    Cited by:

    1. Sekkat, Khalid, 2016. "Exchange rate misalignment and export diversification in developing countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 59(C), pages 1-14.
    2. repec:cii:cepiei:2015-q1-141-8 is not listed on IDEAS
    3. repec:bla:reviec:v:25:y:2017:i:5:p:949-974 is not listed on IDEAS
    4. Ibrahim Ahmed Elbadawi & Raimundo Soto, 2012. "Resource Rents, Political Institutions and Economic Growth," Documentos de Trabajo 413, Instituto de Economia. Pontificia Universidad Católica de Chile..
    5. Zhang, Zhibai & Chen, Langnan, 2014. "A new assessment of the Chinese RMB exchange rate," China Economic Review, Elsevier, vol. 30(C), pages 113-122.
    6. Ibrahim Elbadawi & Eman Refaat, 2015. "Competitive Real Exchange Rates are Good for the Poor: Evidence from Egyptian Household Surveys," Working Papers 966, Economic Research Forum, revised Nov 2015.
    7. Khalid Sekkat, 2012. "Exchange Rate Undervaluation, Financial Development and Growth," Working Papers 742, Economic Research Forum, revised Dec 2012.
    8. Ibrahim Elbadawi & Raimundo Soto, 2013. "Aid, Exchange Rate Regimes and Post-conflict Monetary Stabilization," Working Papers 751, Economic Research Forum, revised May 2013.
    9. Blaise Gnimassoun, 2017. "Exchange rate misalignments and the external balance under a pegged currency system," Post-Print hal-01665005, HAL.
    10. Evžen Kočenda & Mathilde Maurel & Gunther Schnabl, 2013. "Short- and Long-term Growth Effects of Exchange Rate Adjustment," Review of International Economics, Wiley Blackwell, vol. 21(1), pages 137-150, February.
    11. Ibrahim Elbadawi & Raimundo Soto, 2013. "Exchange Rate Regimes for Post-conflict Recovery," Working Papers 748, Economic Research Forum, revised Apr 2013.
    12. Blaise Gnimassoun, 2017. "Exchange rate misalignments and the external balance under a pegged currency system," Review of International Economics, Wiley Blackwell, vol. 25(5), pages 949-974, November.
    13. Fischer, A.M., 2016. "Aid and the symbiosis of global redistribution and development: Comparative historical lessons from two icons of development studies," ISS Working Papers - General Series 618, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    14. Ibrahim A. Elbadawi & Linda Kaltani, 2014. "Real Exchange Rates and Export Performance in Oil-Dependent Arab Economies," Working Papers 878, Economic Research Forum, revised Nov 2014.
    15. Khalid Sekkat, 2016. "Export Orientation and Exchange Rate Changes: Do Firms React Differently and Why?," Working Papers 989, Economic Research Forum, revised Apr 2016.
    16. Diallo, Ibrahima Amadou, 2015. "On the link between real exchange rate misalignment and growth: theory and empirical evidence," MPRA Paper 68064, University Library of Munich, Germany.
    17. Shimeles Abebe & Adeleke Oluwole Salami & Anthony M. Simpasa, 2015. "Working Paper 221 - Employment Effects of Multilateral Development Bank Projects The Case of the African Development Bank," Working Paper Series 2160, African Development Bank.
    18. King, Alan & Ramlogan-Dobson, Carlyn, 2015. "Is Africa Actually Developing?," World Development, Elsevier, vol. 66(C), pages 598-613.
    19. Chirwa, Themba G & Odhiambo, Nicholas M, 2016. "The drivers of real sector growth in Malawi: an empirical investigation," Working Papers 20037, University of South Africa, Department of Economics.
    20. DEGUENONVO, Cédric, 2017. "Real exchange rate misalignment in Senegal: effect on growth," MPRA Paper 84338, University Library of Munich, Germany.

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