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Aid, Export Promotion and the Real Exchange Rate: An African Dilemma?

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  • van Wijnbergen, Sweder

Abstract

Africa, while a major aid recipient, has had disappointing export performance. This paper argues for a causal link: aid, by being partially spent on non-traded goods, leads to real appreciation and reduced export competitiveness. I demonstrate the importance of this effect by presenting econometric evidence on the positive relation between aid flows and real exchange rate appreciation and increases in the real wage in the traded-goods sector. Policy implications are discussed.

Suggested Citation

  • van Wijnbergen, Sweder, 1985. "Aid, Export Promotion and the Real Exchange Rate: An African Dilemma?," CEPR Discussion Papers 88, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:88
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Christopher Adam & Stephen A O`Connell, 2000. "Aid versus Trade Revisited," Economics Series Working Papers WPS/2000-19, University of Oxford, Department of Economics.
    2. Akiko Suwa-Eisenmann & Thierry Verdier, 2007. "Aid and trade," Oxford Review of Economic Policy, Oxford University Press, vol. 23(3), pages 481-507, Autumn.
    3. Jarotschkin, Alexandra & Kraay, Aart, 2013. "Aid, disbursement delays, and the real exchange rate," Policy Research Working Paper Series 6501, The World Bank.
    4. World Bank, 2007. "Angola : Oil, Broad-Based Growth, and Equity," World Bank Publications, The World Bank, number 6759.
    5. Jonathan Munemo, 2011. "Foreign aid and export diversification in developing countries," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 20(3), pages 339-355.
    6. Mwanza Nkusu & Selin Sayek, 2004. "Local Financial Development and the Aid-Growth Relationship," IMF Working Papers 04/238, International Monetary Fund.
    7. 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.
    8. Jonathan Munemo & Subhayu Bandyopadhyay & Arabinda Basistha, 2006. "Foreign Aid and Export Performance: A Panel Data Analysis of Developing Countries," Working Papers 06-10 Classification-, Department of Economics, West Virginia University.
    9. Rajan, Raghuram G. & Subramanian, Arvind, 2011. "Aid, Dutch disease, and manufacturing growth," Journal of Development Economics, Elsevier, vol. 94(1), pages 106-118, January.
    10. Christopher S. Adam & Stephen A. O'Connell, 2000. "Aid versus trade revisited," CSAE Working Paper Series 2000-19, Centre for the Study of African Economies, University of Oxford.
    11. Kyle, Steven C., 2007. "Oil, Growth and Political Development in Angola," Working Papers 127007, Cornell University, Department of Applied Economics and Management.
    12. Mahmoud M. Sabra & Shaker Sartawi, 2015. "Development Impacts of Foreign Aid on Economic Growth, Domestic Savings and Dutch Disease Presence in Palestine," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 3(11), pages 532-542, November.
    13. Pritchett, Lant, 1996. "Measuring outward orientation in LDCs: Can it be done?," Journal of Development Economics, Elsevier, vol. 49(2), pages 307-335, May.
    14. Aye Mengistu, Alemu, 2008. "Determinants of Vertical and Horizontal Export Diversification: Evidences from Sub-Saharan Africa and East Asia," Ethiopian Journal of Economics, Ethiopian Economics Association, vol. 17(2).
    15. Kyle, Steven C., 2005. "Oil Revenue, The Real Exchange Rate and Sectoral Distortion in Angola," Working Papers 127087, Cornell University, Department of Applied Economics and Management.
    16. White, Howard & Luttik, Joke & DEC, 1994. "The countrywide effects of aid," Policy Research Working Paper Series 1337, The World Bank.
    17. Belshaw, Deryke & Lawrence, Peter & Hubbard, Michael, 1999. "Agricultural Tradables and Economic Recovery in Uganda: The Limitations of Structural Adjustment in Practice," World Development, Elsevier, vol. 27(4), pages 673-690, April.

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