Where Did All the Aid Go? An Empirical Analysis of Absorption and Spending
This paper examines the macroeconomic usage of aid using panel data for a broad sample of aid-recipients. By definition an increase in aid must go toward a reduction in the current account balance (absorbed aid), an increase in capital outflows, or reserve accumulation. It is found that short-run absorption is typically very low, with much aid exiting through the capital account. Moreover, aid spending, defined in terms of the increase in government fiscal expenditures as a result of aid, is significantly greater than aid absorption, implying that aid systematically leads to an injection of domestic liquidity in recipient economies. The evidence here may help illuminate the rather weak link between aid and growth found in the literature. It reinforces the case for greater coordination between fiscal and monetary authorities in response to aid inflows.
|Date of creation:||01 Feb 2008|
|Date of revision:|
|Contact details of provider:|| Postal: International Monetary Fund, Washington, DC USA|
Phone: (202) 623-7000
Fax: (202) 623-4661
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC
|Order Information:||Web: http://www.imf.org/external/pubs/pubs/ord_info.htm|
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.:
- Alberto Alesina & Beatrice Weder, 2002.
"Do Corrupt Governments Receive Less Foreign Aid?,"
American Economic Review,
American Economic Association, vol. 92(4), pages 1126-1137, September.
- Alberto Alesina & Beatrice Weder, 1999. "Do Corrupt Governments Receive Less Foreign Aid?," NBER Working Papers 7108, National Bureau of Economic Research, Inc.
- Alesina, Alberto & Weder, Beatrice, 2002. "Do Corrupt Governments Receive Less Foreign Aid?," Scholarly Articles 4553011, Harvard University Department of Economics.
- 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, 2005. "Aid and Growth: What Does The Cross-Country Evidence Really Show?," Working Papers id:54, eSocialSciences.
- Raghuram Rajan & Arvind Subramanian, 2005. "Aid and Growth; What Does the Cross-Country Evidence Really Show?," IMF Working Papers 05/127, International Monetary Fund.
- 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.
- Dalgaard, Carl-Johan & Hansen, Henrik & Tarp, Finn, 2002.
"On the Empirics of Foreign Aid and Growth,"
63696, University Library of Munich, Germany.
- Hansen, Henrik & Tarp, Finn, 2001.
"Aid and growth regressions,"
Journal of Development Economics,
Elsevier, vol. 64(2), pages 547-570, April.
- Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
- Michael Clemens & Steven Radelet & Rikhil Bhavnani, 2004.
"Counting Chickens When They Hatch: The Short-term Effect of Aid on Growth,"
44, Center for Global Development.
- Michael A. Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting chickens when they hatch: The short-term effect of aid on growth," International Finance 0407010, EconWPA.
- Collier, Paul & Dollar, David, 1999.
"Aid allocation and poverty reduction,"
Policy Research Working Paper Series
2041, The World Bank.
- William Easterly & Ross Levine & David Roodman, 2003. "New Data, New doubts: A Comment on Burnside and Dollar's "Aid, Policies, and Growth" (2000)," NBER Working Papers 9846, National Bureau of Economic Research, Inc.
- Burnside, Craig & Dollar, David, 1997.
"Aid, policies, and growth,"
Policy Research Working Paper Series
1777, The World Bank.
- Barry P. Bosworth & Susan M. Collins, 1999. "Capital Flows to Developing Economies: Implications for Saving and Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 143-180.
- Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October.
When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:08/34. 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: (Jim Beardow)or (Hassan Zaidi)
If references are entirely missing, you can add them using this form.