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A Timeseries Analysis of the Impact of Foreign Aid on Central Government's Fiscal Budget in Uganda

Listed author(s):
  • Bwire, Thomas
  • Lloyd, Tim
  • Morrissey, Oliver
Registered author(s):

    A dynamic relationship between foreign aid and domestic fiscal variables in Uganda is analysed using a cointegrated vector autoregressive model over the period 1972-2008. Results show that aid is a significant element of long-run fiscal equilibrium, is associated with increased tax effort and public spending, and reduced domestic borrowing. Shocks to tax revenue are the pulling forces, while those to domestic borrowing, government spending and aid are the pushing forces of the system. In terms of policy, it is crucial for donors to increase the reliability and predictability of aid, coordinate aid delivery systems and also make aid more transparent.

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    File URL: https://www.wider.unu.edu/sites/default/files/WP2013-101.pdf
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    Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series WIDER Working Paper Series with number 101.

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    Length: 27
    Date of creation: 2013
    Handle: RePEc:unu:wpaper:wp2013-101
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    1. Morten Jerven, 2010. "Random Growth in Africa? Lessons from an Evaluation of the Growth Evidence on Botswana, Kenya, Tanzania and Zambia, 1965-1995," Journal of Development Studies, Taylor & Francis Journals, vol. 46(2), pages 274-294.
    2. Azam, Jean-Paul & Laffont, Jean-Jacques, 2003. "Contracting for aid," Journal of Development Economics, Elsevier, vol. 70(1), pages 25-58, February.
    3. Paul Clist & Oliver Morrissey, 2011. "Aid and tax revenue: Signs of a positive effect since the 1980s," Journal of International Development, John Wiley & Sons, Ltd., vol. 23(2), pages 165-180, March.
    4. Morrissey, Oliver, 2012. "Aid and Government Fiscal Behaviour: What Does the Evidence Say?," WIDER Working Paper Series 001, World Institute for Development Economic Research (UNU-WIDER).
    5. McGillivray, Mark, 1994. "The impact of foreign aid on the fiscal behavior of Asian LDC governments: A comment on Khan and Hoshino (1992)," World Development, Elsevier, vol. 22(12), pages 2015-2017, December.
    6. Ritva Reinikka & Paul Collier, 2001. "Uganda's Recovery : The Role of Farms, Firms, and Government," World Bank Publications, The World Bank, number 13850, December.
    7. Mumtaz Hussain & Andrew Berg & Shekhar Aiyar, 2009. "The Macroeconomic Management of Increased Aid: Policy Lessons from Recent Experience," Review of Development Economics, Wiley Blackwell, vol. 13(s1), pages 491-509, August.
    8. Katarina Juselius & Niels Framroze Møller & Finn Tarp, 2014. "The Long-Run Impact of Foreign Aid in 36 African Countries: Insights from Multivariate Time Series Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 76(2), pages 153-184, April.
    9. 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.
    10. Baffoe, John K., 2000. "Structural adjustment and agriculture in Uganda," ILO Working Papers 993398873402676, International Labour Organization.
    11. Ale Bulir & A. Javier Hamann, 2003. "Aid Volatility: An Empirical Assessment," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 1-4.
    12. Johansen, Soren, 2002. "A small sample correction for tests of hypotheses on the cointegrating vectors," Journal of Econometrics, Elsevier, vol. 111(2), pages 195-221, December.
    13. Morrissey, Oliver & Osei, Robert & Lloyd, Tim, 2002. "Modelling the fiscal effects of aid : an impulse response approach for Ghana," HWWA Discussion Papers 170, Hamburg Institute of International Economics (HWWA).
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    17. Mark McGillivray & Oliver Morrissey, 2000. "Aid fungibility in Assessing Aid: red herring or true concern?," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 413-428.
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