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Logic of aid in an intertemporal setting

  • Slobodan Djajic

    ()

    (IUHEI)

  • Sajal Lahiri

    ()

    (Southern Illinois University)

  • Pascalis Raimondos-Moller

    ()

    (Copenhagen Business School)

This paper studies the welfare implications of temporary foreign aid in the context of a simple two-country model of trade. In addition to its usual effects, a transfer of income in one period is assumed to influence the preferences of the recipient country in the following period. The implied changes in the terms of trade over the two periods are consistent with a number of possible outcomes with respect to the intertemporal welfare of the donor, the recipient, and the world as a whole. Particular attention is devoted to the conditions for strict Pareto improvement and the circumstances under which temporary aid transactions are likely to occur.

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File URL: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIWP06-2003.pdf
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Paper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 06-2003.

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Length: 24
Date of creation: Jun 2003
Date of revision:
Publication status: Published in Review of International Economics, Volume 12, 1, 2004, pages 151-161
Handle: RePEc:gii:giihei:heiwp06-2003
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  1. Eaton, Jonathan & Fernandez, Raquel, 1995. "Sovereign debt," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077 Elsevier.
  2. Townsend, R.M., 1991. "Risk and Insurance in Village India," University of Chicago - Economics Research Center 91-3, Chicago - Economics Research Center.
  3. Maurice Obstfeld, 1992. "International Adjustment with Habit-Forming Consumption: A Diagrammatic Exposition," NBER Working Papers 4094, National Bureau of Economic Research, Inc.
  4. Turunen-Red, Arja H. & Woodland, Alan D., 1988. "On the multilateral transfer problem : Existence of Pareto improving international transfers," Journal of International Economics, Elsevier, vol. 25(3-4), pages 249-269, November.
  5. Klemperer, Paul, 1992. "Competition When Consumers Have Switching Costs: An Overview," CEPR Discussion Papers 704, C.E.P.R. Discussion Papers.
  6. Galor, O. & Polemarchakis, H.M., 1984. "Intertemporal equilibrium and the transfor paradox," CORE Discussion Papers 1984014, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Djajic, Slobodan & Lahiri, Sajal & Raimondos-Moller, Pascalis, 1999. "Foreign Aid, Domestic Investment and Welfare," Economic Journal, Royal Economic Society, vol. 109(458), pages 698-707, October.
  8. Maizels, Alfred & Nissanke, Machiko K., 1984. "Motivations for aid to developing countries," World Development, Elsevier, vol. 12(9), pages 879-900, September.
  9. Bhagwati, Jagdish N & Brecher, Richard A & Hatta, Tatsuo, 1983. "The Generalized Theory of Transfers and Welfare: Bilateral Transfers in a Multilateral World," American Economic Review, American Economic Association, vol. 73(4), pages 606-18, September.
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