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Aid and Sectoral Growth: Evidence from Panel Data

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  • Pablo Selaya
  • Rainer Thiele

Abstract

This article examines empirically the proposition that aid to poor countries is detrimental for external competitiveness, giving rise to Dutch disease type effects. At the aggregate level, aid is found to have a positive effect on growth. A sectoral decomposition shows that the effect is (i) significant and positive in the tradable and the nontradable sectors, and (ii) equally strong in both sectors. The article thus provides no empirical support for the hypothesis that aid reduces external competitiveness in developing countries. A possible reason for this finding is the existence of large idle labour capacity that prevents the real exchange rate from appreciating.

Suggested Citation

  • Pablo Selaya & Rainer Thiele, 2010. "Aid and Sectoral Growth: Evidence from Panel Data," Journal of Development Studies, Taylor & Francis Journals, vol. 46(10), pages 1749-1766.
  • Handle: RePEc:taf:jdevst:v:46:y:2010:i:10:p:1749-1766
    DOI: 10.1080/00220388.2010.492856
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    Citations

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    Cited by:

    1. Alia, Didier Yelognisse & Anago, Romuald E. Kouadio, 2014. "Foreign aid effectiveness in African economies: Evidence from a panel threshold framework," WIDER Working Paper Series 015, World Institute for Development Economic Research (UNU-WIDER).
    2. Efobi, Uchenna & Asongu, Simplice & Okafor, Chinelo & Tchamyou, Vanessa & Tanankem, Belmondo, 2016. "Diaspora Remittance Inflow, Financial Development and the Industrialisation of Africa," MPRA Paper 76121, University Library of Munich, Germany.
    3. repec:unu:wpaper:wp2012-26 is not listed on IDEAS
    4. David Fielding & Fred Gibson, 2013. "Aid and Dutch Disease in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 22(1), pages 1-21, January.
    5. Kojo, Naoko C., 2014. "Demystifying Dutch disease," Policy Research Working Paper Series 6981, The World Bank.
    6. Adwoa A. Nsor-Ambala, 2015. "Foreign Transfers, Manufacturing Growth and the Dutch Disease Revisited," Bristol Economics Discussion Papers 15/663, Department of Economics, University of Bristol, UK.
    7. Ioana M. PETRESCU, 2016. "The Effects of Economic Sanctions on the Informal Economy," Management Dynamics in the Knowledge Economy Journal, College of Management, National University of Political Studies and Public Administration, vol. 4(4), pages 623-648, December.

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