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Foreign aid and domestic absorption

Research output: Contribution to journalArticle

Original languageEnglish
Pages (from-to)431-443
Number of pages13
JournalJournal of International Economics
Volume108
Early online date5 Aug 2017
DOIs
DateAccepted/In press - 30 Jul 2017
DateE-pub ahead of print - 5 Aug 2017
DatePublished (current) - Sep 2017

Abstract

This paper introduces a new ‘supply-push’ instrument for foreign aid, to be used together with an instrumental variable estimator that filters out unobserved common factors. We use this instrument to study the effects of aid on macroeconomic ratios, and especially the ratios of consumption, investment, imports and exports to GDP. We cannot reject the hypothesis that aid is fully absorbed rather than used to build foreign reserves or exiting as capital flight, nor do we find evidence of Dutch Disease effects. Aid leads to higher consumption, while the evidence that it promotes investment is less robust.

    Research areas

  • Foreign aid, Absorption, Dutch Disease, Common correlated effects

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  • Full-text PDF (accepted author manuscript)

    Rights statement: This is the accepted author manuscript (AAM). The final published version (version of record) is available online via Elsevier at https://doi.org/10.1016/j.jinteco.2017.07.010 . Please refer to any applicable terms of use of the publisher.

    Accepted author manuscript, 1 MB, PDF document

    Licence: CC BY-NC-ND

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