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Aid, debt and fiscal policies in Senegal

  • Bazoumana Ouattara

    (Economics Department, The University of Wales, Swansea, UK)

This paper uses the fiscal response framework to study the effects of aid flows on key fiscal aggregates in Senegal, over the period of 1970-2000. Attention is given to the interplay between aid and debt. The paper contributes to the empirics of fiscal response modelling by deriving the standard errors and p values associated with the different mechanisms of the structural and reduced form equations. The main findings in this paper are: (i) relatively large shares of government resources are used to finance debt servicing; (ii) the impact of aid flows on domestic expenditure is statistically insignificant and (iii) debt servicing has a significant negative effect on domestic expenditure. The main policy implication of this study is that debt reduction could be a more effective policy tool than additional aid (loans) in financing pro-poverty expenditure as well as public investment. Copyright © 2006 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

Volume (Year): 18 (2006)
Issue (Month): 8 ()
Pages: 1105-1122

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Handle: RePEc:wly:jintdv:v:18:y:2006:i:8:p:1105-1122
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  1. Ira N. Gang & Haider Ali Khan, 1998. "Foreign Aid and Fiscal Behavior in a Bounded Rathionality Model: Different Policy Regimes," Departmental Working Papers 199812, Rutgers University, Department of Economics.
  2. Bahmani-Oskooee, Mohsen, 2001. "How stable is M2 money demand function in Japan?," Japan and the World Economy, Elsevier, vol. 13(4), pages 455-461, December.
  3. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  4. McGillivray, Mark, 2000. "Aid and Public Sector Behavior in Developing Countries," Review of Development Economics, Wiley Blackwell, vol. 4(2), pages 156-63, June.
  5. Catherine Pattillo & Hélène Poirson & Luca Antonio Ricci, 2011. "External Debt and Growth," Review of Economics and Institutions, Università di Perugia, vol. 2(3).
  6. Heller, Peter S, 1975. "A Model of Public Fiscal Behavior in Developing Countries: Aid, Investment, and Taxation," American Economic Review, American Economic Association, vol. 65(3), pages 429-45, June.
  7. Costas Karfakis, 2002. "Testing the quantity theory of money in Greece," Applied Economics, Taylor & Francis Journals, vol. 34(5), pages 583-587.
  8. Susana Franco-Rodriguez, & Mark McGillivray, & Oliver Morrissey, . "Aid and the Public Sector in Pakistan: Evidence with Endogenous Aid," Discussion Papers 98/2, University of Nottingham, CREDIT.
  9. Binh, Tran-Nam & McGillivray, Mark, 1993. "Foreign aid, taxes and public investment A comment," Journal of Development Economics, Elsevier, vol. 41(1), pages 173-176, June.
  10. Mavrotas, George & Ouattara, Bazoumana, 2003. "Aid Disaggregation, Endogenous Aid and the Public Sector in Aid-Recipient Economies: Evidence from C.te d'Ivoire," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  11. Mosley, Paul & Hudson, John & Horrell, Sara, 1987. "Aid, the Public Sector and the Market in Less Developed Countries," Economic Journal, Royal Economic Society, vol. 97(387), pages 616-41, September.
  12. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
  13. Mark McGillivray & Bazoumana Ouattara, 2005. "Aid, Debt Burden and Government Fiscal Behaviour in Côte d'Ivoire," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 14(2), pages 247-269, June.
  14. George Mavrotas, 2002. "Foreign aid and fiscal response: Does aid disaggregation matter?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 138(3), pages 534-559, September.
  15. Pack, Howard & Pack, Janet Rothenberg, 1993. "Foreign Aid and the Question of Fungibility," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 258-65, May.
  16. B Ouattara, 2004. "Modelling the Long Run Determinants of Private Investment in Senegal," The School of Economics Discussion Paper Series 0413, Economics, The University of Manchester.
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