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Foreign Aid : Where Your Money Could Be ? An Optimal Two-Sector Growth Model Out Lining a Simple Answer

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  • Raul FUENTES

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

In this paper, we present an optimal two-sector growth model involving foreign aid as an input into the production function. We characterize the optimal resources allocation across sectors. Once calibrated, mainly, on Latin America, countries, the model exhibits weak substitutability between aid and capital stock. Nonetheless, using numerical simulations, the model reproduces the main stylized facts outlined in the literature.

Suggested Citation

  • Raul FUENTES, 2003. "Foreign Aid : Where Your Money Could Be ? An Optimal Two-Sector Growth Model Out Lining a Simple Answer," LIDAM Discussion Papers IRES 2004003, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:2004003
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    References listed on IDEAS

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    9. Barro, Robert J. & Lee, Jong-Wha, 2005. "IMF programs: Who is chosen and what are the effects?," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1245-1269, October.
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    More about this item

    Keywords

    Foreign Aid; Economic Development; Investment; Economic Growth; Quantitative Approach;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O21 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Planning Models; Planning Policy
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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