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Aid and Dutch Disease: Evidence from Moroccan and Tunisian Time-Series Data

Listed author(s):
  • Addison, Tony
  • Baliamoune-Lutz, Mina

We examine aid-induced Dutch Disease–after controlling for the effects of remittances and FDI flows–in the context of two North African countries, Morocco and Tunisia. We do so by performing a multivariate time series analysis of aggregated annual data over the period 1980-2009. Aid causes real exchange rate appreciation in the case of Morocco, especially in the long run, but has no effect on the real exchange rate in the case of Tunisia. Remittances cause a real depreciation in Tunisia but have no significant effect in Morocco, while FDI does not have an effect on the real exchange rate in either country. We discuss the policy implications of the main results: aid and other types of foreign exchange inflow have the potential to cause Dutch Disease but this is not automatic in the way suggested by the strongest critiques of aid. Morocco and Tunisia provide contrasting outcomes. Our results confirm the importance of the macroeconomic framework in which aid is provided, and the key role for infrastructure and other supply-side improvements to the final real-economy impact of aid and other inflows.

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File URL: https://www.wider.unu.edu/sites/default/files/WP2013-132.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 132.

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Length: 28
Date of creation: 2013
Handle: RePEc:unu:wpaper:wp2013-132
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  1. Doucouliagos , H. & Paldam, M., 2007. "The aid effectiveness literature: The sad results of 40 years of research," Cambridge Working Papers in Economics 0773, Faculty of Economics, University of Cambridge.
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  12. Baliamoune-Lutz, Mina & Addison, Tony, 2007. "Economic reform when institutional quality is weak: The case of the Maghreb," Journal of Policy Modeling, Elsevier, vol. 29(1), pages 65-79.
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