Aid, Exports, and Growth : A Time-Series Perspective on the Dutch Disease Hypothesis

Author/Editor:

Joong S Kang ; Alessandro Prati ; Alessandro Rebucci

Publication Date:

March 20, 2013

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

We use a heterogeneous panel VAR model identified through factor analysis to study the dynamic response of exports, imports, and per capita GDP growth to a “global” aid shock. We find that a global aid shock can affect exports, imports, and growth either positively or negatively. As a result, the relation between aid and growth is mixed, consistent with the ambiguous results in the existing literature. For most countries in the sample, when aid reduces exports and imports, it also reduces growth; and, when aid increases exports and imports, it also increases growth. This evidence is consistent with a DD hypothesis, but also shows that aid-receiving countries are not “doomed” to catch DD.

Series:

Working Paper No. 13/73

Subject:

Aid Development assistance Dutch disease Economic growth Economic models Exchange rate appreciation Exports External shocks Foreign aid Imports Time series

English

Publication Date:

March 20, 2013

ISBN/ISSN:

9781484320112/1018-5941

Stock No:

WPIEA2013073

Format:

Paper

Pages:

29

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