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Enhancing Effective Utilization of Aid in Fragile States

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  • Gupta, Sanjeev

Abstract

This paper explores the macroeconomic implications of aid flows in countries with weak institutions. It argues that these countries should take into account their overall macroeconomic position, their capacity to absorb aid at the sectoral and subnational levels, and the strength of their fiscal institutions in deciding how much and how fast to spend aid. These considerations may warrant a gradual use of aid, except when aid is provided for humanitarian purposes. There is some basis for frontloading spending for countries emerging from a conflict, otherwise fragile states should seek to smoothen their spending against the background of aid volatility and uncertainty.

Suggested Citation

  • Gupta, Sanjeev, 2008. "Enhancing Effective Utilization of Aid in Fragile States," WIDER Working Paper Series 007, World Institute for Development Economic Research (UNU-WIDER).
  • Handle: RePEc:unu:wpaper:rp2008-07
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    File URL: http://www.wider.unu.edu/sites/default/files/rp2008-07.pdf
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    References listed on IDEAS

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    1. Rodrik, Dani, 2000. "Institutions For High-Quality Growth: What They Are And How To Acquire Them," CEPR Discussion Papers 2370, C.E.P.R. Discussion Papers.
    2. Gupta, Sanjeev & Clements, Benedict & Bhattacharya, Rina & Chakravarti, Shamit, 2004. "Fiscal consequences of armed conflict and terrorism in low- and middle-income countries," European Journal of Political Economy, Elsevier, vol. 20(2), pages 403-421, June.
    3. Elbadawi, Ibrahim A. & Kaltani, Linda & Schmidt-Hebbel, Klaus, 2007. "Post-conflict aid, real exchange rate adjustment, and catch-up growth," Policy Research Working Paper Series 4187, The World Bank.
    4. Andrew Berg & Mumtaz Hussain & Shaun K. Roache & Amber A Mahone & Tokhir N Mirzoev & Shekhar Aiyar, 2007. "The Macroeconomics of Scaling Up Aid; Lessons from Recent Experience," IMF Occasional Papers 253, International Monetary Fund.
    5. Rina Bhattacharya & Benedict J. Clements & Sanjeev Gupta & Shamsuddin Tareq & Alex Segura-Ubiergo & Todd D. Mattina, 2005. "Rebuilding Fiscal Institutions in Postconflict Countries," IMF Occasional Papers 247, International Monetary Fund.
    6. Heller, Peter S. & Katz, Menachem & Debrun, Xavier & Thomas, Theo & Koranchelian, Taline & Adenauer, Isabell, 2006. "Making Fiscal Space Happen! Managing Fiscal Policy in a World of Scaled-Up Aid," WIDER Working Paper Series 125, World Institute for Development Economic Research (UNU-WIDER).
    7. Collier, Paul & Hoeffler, Anke, 2004. "Aid, policy and growth in post-conflict societies," European Economic Review, Elsevier, vol. 48(5), pages 1125-1145, October.
    8. Christopher Adam & Paul Collier & Victor A.B. Davies, 2008. "Postconflict Monetary Reconstruction," World Bank Economic Review, World Bank Group, vol. 22(1), pages 87-112, January.
    9. Davies, Victor A. B., 2007. "Capital flight and war," Policy Research Working Paper Series 4210, The World Bank.
    10. Addison, Tony & Chowdhury, Abdur R. & Murshed, S. Mansoob, 2002. "By How Much Does Conflict Reduce Financial Development?," WIDER Working Paper Series 048, World Institute for Development Economic Research (UNU-WIDER).
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    Keywords

    aid absorption; aid flows; institutions; post-conflict;

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