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Aid, the Real Exchange Rate and Why Policy Matters: The Cases of Morocco and Tunisia

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  • Tony Addison
  • Mina Baliamoune-Lutz

Abstract

Every form of foreign-exchange inflow, including aid, can potentially cause real-exchange rate appreciation, with adverse consequences for the production of tradables (‘Dutch Disease’). Whether it does so depends on the policy response to the inflow. This paper investigates the issue for Morocco and Tunisia, over 1980–2009. We find that aid led to a real appreciation in Morocco, but had no effect on Tunisia’s real exchange rate. This confirms the importance of the macroeconomic framework in which aid is provided, and the key role for infrastructure and other supply-side improvements in determining the final real-economy impact of aid and other inflows.

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  • Tony Addison & Mina Baliamoune-Lutz, 2017. "Aid, the Real Exchange Rate and Why Policy Matters: The Cases of Morocco and Tunisia," Journal of Development Studies, Taylor & Francis Journals, vol. 53(7), pages 1104-1121, July.
    • Handle: RePEc:taf:jdevst:v:53:y:2017:i:7:p:1104-1121
    DOI: 10.1080/00220388.2017.1303673
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    Cited by:

    1. Muntasir Murshed & Seemran Rashid, 2020. "An Empirical Investigation of Real Exchange Rate Responses to Foreign Currency Inflows: Revisiting the Dutch Disease Phenomenon in South Asia," The Economics and Finance Letters, Conscientia Beam, vol. 7(1), pages 23-46.
    2. Sèna Kimm Gnangnon, 2020. "Development aid, remittances inflows and wages in the manufacturing sector," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 22(2), pages 278-304, December.
    3. Sèna Kimm Gnangnon, 2021. "Aid for trade and inflation: Exploring the trade openness, export product diversification and foreign direct investment channels," Australian Economic Papers, Wiley Blackwell, vol. 60(4), pages 563-593, December.
    4. Sèna Kimm Gnangnon, 2021. "Development aid and services export diversification," International Journal of Economic Policy Studies, Springer, vol. 15(1), pages 125-156, February.
    5. Roger, Lionel, 2019. "A replication of "The long-run impact of foreign aid in 36 African countries: Insights from multivariate time series analysis" (Oxford Bulletin of Economics and Statistics, 2014)," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-53.
    6. Santanu Chatterjee & Mark C. Kelly & Stephen J. Turnovsky, 2022. "Foreign aid, public investment, and the informal economy," Economic Inquiry, Western Economic Association International, vol. 60(1), pages 174-201, January.
    7. Muhammad Athar Nadeem & Zhiying Liu & Haji Suleman Ali & Amna Younis & Muhammad Bilal & Yi Xu, 2020. "Innovation and Sustainable Development: Does Aid and Political Instability Impede Innovation?," SAGE Open, , vol. 10(4), pages 21582440209, November.
    8. Gnangnon, Sèna Kimm, 2020. "Aid for Trade flows and Poverty Reduction in Recipient-Countries," EconStor Preprints 213807, ZBW - Leibniz Information Centre for Economics.
    9. Sèna Kimm Gnangnon, 2022. "Aid for Trade, export product diversification, and foreign direct investment," Review of Development Economics, Wiley Blackwell, vol. 26(1), pages 534-561, February.
    10. Nell, Kevin, 2023. "Inflation and growth in developing economies: A tribute to Professor Thirlwall," MPRA Paper 118757, University Library of Munich, Germany, revised 01 Sep 2023.
    11. Sena Kimm Gnangnon, 2022. "Effect of Structural Economic Vulnerability on the Participation in International Trade," JRFM, MDPI, vol. 15(9), pages 1-36, September.
    12. Gnangnon, Sèna Kimm, 2020. "Development Aid, Remittances Inflows and Wages in the Manufacturing Sector of Recipient-Countries," EconStor Preprints 213439, ZBW - Leibniz Information Centre for Economics.
    13. Roger, Lionel, 2019. "A replication of "The long-run impact of foreign aid in 36 African countries: Insights from multivariate time series analysis" (Oxford Bulletin of Statistics and Economics, 2014)," Economics Discussion Papers 2019-27, Kiel Institute for the World Economy (IfW Kiel).
    14. Haldar, Anasuya & Sethi, Narayan, 2022. "Effect of sectoral foreign aid allocation on growth and structural transformation in sub-Saharan Africa—Analysing the roles of institutional quality and human capital," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 1010-1026.
    15. Hao, Linna & Ahmad, Shabbir & Chang, Hsu-Ling & Umar, Muhammad, 2021. "Knowledge spill-over and institutional quality role in controlling Dutch disease: A case of BRICS countries," Resources Policy, Elsevier, vol. 72(C).
    16. Gnangnon, Sèna Kimm, 2022. "Effect of structural economic vulnerability on the participation in international trade," EconStor Preprints 262004, ZBW - Leibniz Information Centre for Economics.
    17. Ahmad, Ahmad Hassan & Pentecost, Eric J. & Stack, Marie M., 2023. "Foreign aid, debt interest repayments and Dutch disease effects in a real exchange rate model for African countries," Economic Modelling, Elsevier, vol. 126(C).

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