Aid, Exports, and Growth: A Time-Series Perspective on the Dutch Disease Hypothesis
The available evidence on the effects of aid on growth is notoriously mixed. We use a novel empirical methodology, a heterogeneous panel vector-autoregression model identified through factor analysis, to study the dynamic response of exports, imports, and per capita GDP growth to a "global" aid shock (the common component of individual country aid-to-GDP ratios). We find that the estimated cumulative resposive of exports and per capita GDP growth to a global aid shock are strongly positively correlated, and both responses are inversely related to exchange rate overvaluation measures. We interpret this evidence as consistent with the Dutch disease hypothesis. However, we also find that, in countries with less overvalued real exchange rates, exports and per capita GDP growth respond positively to a global aid shock. This evidence suggests that preventing exchange rate overvaluations may allow aid-receiving countries to avoid the Dutch disease.
|Date of creation:||Aug 2010|
|Date of revision:|
|Contact details of provider:|| Postal: 1300 New York Avenue, NW, Washington, DC 20577|
Web page: http://www.iadb.org/res
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hansen, Henrik & Tarp, Finn, 2001.
"Aid and growth regressions,"
Journal of Development Economics,
Elsevier, vol. 64(2), pages 547-570, April.
- Rajan, Raghuram G. & Subramanian, Arvind, 2011.
"Aid, Dutch disease, and manufacturing growth,"
Journal of Development Economics,
Elsevier, vol. 94(1), pages 106-118, January.
- Raghuram G. Rajan, 2005.
"Aid and Growth: What Does The Cross-Country Evidence Really Show?,"
- Raghuram G. Rajan & Arvind Subramanian, 2008. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 643-665, November.
- Raghuram G. Rajan & Arvind Subramanian, 2005. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," NBER Working Papers 11513, National Bureau of Economic Research, Inc.
- Raghuram Rajan & Arvind Subramanian, 2005. "Aid and Growth; What Does the Cross-Country Evidence Really Show?," IMF Working Papers 05/127, International Monetary Fund.
- Dalgaard, Carl-Johan & Hansen, Henrik & Tarp, Finn, 2002.
"On the Empirics of Foreign Aid and Growth,"
63696, University Library of Munich, Germany.
- Charles I. Jones, 1995. "Time Series Tests of Endogenous Growth Models," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 495-525.
- Kevin Lee & M. Hashem Pesaran & Ron Smith, 1998. "Growth Empirics: A Panel Data Approach—A Comment," The Quarterly Journal of Economics, Oxford University Press, vol. 113(1), pages 319-323.
- Thierry Tressel & Alessandro Prati, 2006. "Aid Volatility and Dutch Disease; Is There a Role for Macroeconomic Policies?," IMF Working Papers 06/145, International Monetary Fund.
When requesting a correction, please mention this item's handle: RePEc:idb:wpaper:4678. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Monica Bazan)
If references are entirely missing, you can add them using this form.