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Aid Allocation, Growth And Welfare With Productive Public Goods

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  • Pierre‐Richard Agénor
  • Devrim Yilmaz

Abstract

This paper develops an open-economy intertemporal growth model with endogenous relative prices and an imperfect world capital market. The government provides two categories of public services, infrastructure and health, which are both productive. Externalities associated with infrastructure in the production of health services are also accounted for. The model is calibrated for a "typical" low-income country and used to examine the growth and welfare effects of both permanent and temporary, tied and untied, increases in aid. Dynamic trade-offs between the short- and the long-run effects of aid shocks on growth, welfare, and the real exchange rate are shown to depend crucially on the composition of aid flows.
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  • Pierre‐Richard Agénor & Devrim Yilmaz, 2013. "Aid Allocation, Growth And Welfare With Productive Public Goods," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 18(2), pages 103-127, March.
    • Handle: RePEc:wly:ijfiec:v:18:y:2013:i:2:p:103-127
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    1. Agénor, Pierre-Richard & Bayraktar, Nihal & El Aynaoui, Karim, 2008. "Roads out of poverty? Assessing the links between aid, public investment, growth, and poverty reduction," Journal of Development Economics, Elsevier, vol. 86(2), pages 277-295, June.
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    15. Agénor, Pierre-Richard & Aizenman, Joshua, 2010. "Aid volatility and poverty traps," Journal of Development Economics, Elsevier, vol. 91(1), pages 1-7, January.
    16. Bulír, Ales & Hamann, A. Javier, 2008. "Volatility of Development Aid: From the Frying Pan into the Fire?," World Development, Elsevier, vol. 36(10), pages 2048-2066, October.
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    Cited by:

    1. Hosoya, Kei, 2019. "Importance of a victim-oriented recovery policy after major disasters," Economic Modelling, Elsevier, vol. 78(C), pages 1-10.
    2. Berg, Andrew & Portillo, Rafael & Zanna, Luis-Felipe, 2015. "Policy Responses to Aid Surges in Countries with Limited International Capital Mobility: The Role of the Exchange Rate Regime," World Development, Elsevier, vol. 69(C), pages 116-129.
    3. Chuku Chuku, 2016. "Evaluating monetary policy options for managing resource revenue shocks when fiscal policy is laissez-faire: Application to Nigeria," WIDER Working Paper Series 045, World Institute for Development Economic Research (UNU-WIDER).
    4. Agénor, Pierre-Richard, 2016. "Optimal fiscal management of commodity price shocks," Journal of Development Economics, Elsevier, vol. 122(C), pages 183-196.
    5. Barañano Mentxaka, Ilaski & San Martín Lizarralde, Marta, 2014. "Foreign Aid Linked to Infrastructure and/or Pollution Abatement," IKERLANAK 11751, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    6. Agénor, Pierre-Richard & Aizenman, Joshua, 2010. "Aid volatility and poverty traps," Journal of Development Economics, Elsevier, vol. 91(1), pages 1-7, January.
    7. Chuku Chuku, 2020. "Monetary policy options for managing resource revenue shocks when fiscal policy is laissez-faire," Economic Change and Restructuring, Springer, vol. 53(1), pages 113-138, February.
    8. Pamela Coke Hamilton & Yvonne Tsikata & Emmanuel Pinto Moreira, 2009. "Accelerating Trade and Integration in the Caribbean : Policy Options for Sustained Growth, Job Creation, and Poverty Reduction," World Bank Publications - Books, The World Bank Group, number 2652, December.
    9. Mr. Rafael A Portillo & Mr. Andrew Berg & Jan Gottschalk & Luis-Felipe Zanna, 2010. "The Macroeconomics of Medium-Term Aid Scaling-Up Scenarios," IMF Working Papers 2010/160, International Monetary Fund.
    10. Barış Alpaslan & King Yoong Lim & Yan Song, 2021. "Growth and welfare in mixed health system financing with physician dual practice in a developing economy: a case of Indonesia," International Journal of Health Economics and Management, Springer, vol. 21(1), pages 51-80, March.
    11. Misch, Florian & Gemmell, Norman & Kneller, Richard Anthony, 2011. "Fiscal policy and growth with complementarities and constraints on government," ZEW Discussion Papers 11-018, ZEW - Leibniz Centre for European Economic Research.
    12. Hosoya, Kei, 2023. "Impact of infectious disease pandemics on individual lifetime consumption: An endogenous time preference approach," Journal of Macroeconomics, Elsevier, vol. 76(C).
    13. Thampanishvong Kannika, 2012. "Provision of Public Goods with the Presence of Inter-Class Conflicts," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 18(1), pages 1-29, April.
    14. Chuku Chuku, 2016. "Evaluating monetary policy options for managing resource revenue shocks when fiscal policy is laissez-faire: Application to Nigeria," WIDER Working Paper Series wp-2016-45, World Institute for Development Economic Research (UNU-WIDER).
    15. Zunera Rana & Dirk-Jan Koch, 2022. "Can fungibility of development aid lead to more effective achievement of the SDGs?: An analysis of the aggregate welfare effect of aid fungibility," WIDER Working Paper Series wp-2022-122, World Institute for Development Economic Research (UNU-WIDER).
    16. Lacina Balma & Daniel Gurara & Mthuli Ncube, 2019. "Working Paper 320 - Hands Off Oil Revenues? Public Investment and Cash Transfers," Working Paper Series 2446, African Development Bank.

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