The short-run macroeconomic impact of foreign aid to small states: an agnostic time series analysis

TY - JOUR

T1 - The short-run macroeconomic impact of foreign aid to small states

T2 - an agnostic time series analysis

AU - Hansen, Henrik

AU - Headey, Derek

PY - 2010/5

Y1 - 2010/5

N2 - This paper investigates the short-run macroeconomic impact of aid in small developing countries (SDCs) by using a vector auto regression (VAR) model to study the impact of aid on net import (absorption) and domestic demand (spending). We focus on average country effects within two country sub-groups, and find substantial differences between 'aid-dependent' SDCs and other SDCs that are more dependent on natural resources, tourism or financial services. In aid-dependent SDCs, aid absorption more or less equals spending, although only half of the aid flow is absorbed and spent. In the non-aid-dependent group, aid does not seem to be absorbed or spent in any systematic fashion.

AB - This paper investigates the short-run macroeconomic impact of aid in small developing countries (SDCs) by using a vector auto regression (VAR) model to study the impact of aid on net import (absorption) and domestic demand (spending). We focus on average country effects within two country sub-groups, and find substantial differences between 'aid-dependent' SDCs and other SDCs that are more dependent on natural resources, tourism or financial services. In aid-dependent SDCs, aid absorption more or less equals spending, although only half of the aid flow is absorbed and spent. In the non-aid-dependent group, aid does not seem to be absorbed or spent in any systematic fashion.

KW - .

U2 - 10.1080/00220381003623848

DO - 10.1080/00220381003623848

M3 - Journal article

SN - 0022-0388

VL - 46

SP - 877

EP - 896

JO - Journal of Development Studies

JF - Journal of Development Studies

IS - 5

ER -