Aid and Dutch Disease in Sub-Saharan Africa

Author: Fielding, David; Gibson, Fred

Date: 2011-08-01

Publisher: University of Otago

Type: Working or discussion paper

Link to this item using this URL: http://hdl.handle.net/10523/1883

University of Otago

Abstract

International aid has an ambiguous effect on the macro-economy of the recipient country. To the extent that aid raises consumer expenditure, there will be some real exchange rate appreciation and a shift of resources away from traded goods production and into non-traded goods production. However, aid for investment in the traded goods sector can mitigate this effect. Also, a relatively high level of productivity in the non-traded goods sector combined with a high level of investment will tend to depreciate the real exchange rate. We examine aid inflows in 26 Sub-Saharan African countries, and find a variety of macro-economic responses. Some of the variation in the responses can be explained by variation in observable country characteristics; this has implications for donor policy.

Subjects: aid, Dutch Disease, Africa

Citation: ["Fielding, D., & Gibson, F. (2011). Aid and Dutch Disease in Sub-Saharan Africa (Economics Discussion Papers Series No. 1108). University of Otago. Retrieved from http://hdl.handle.net/10523/1883"]