Infrastructure Aid, Deindustrialization, and Welfare

Author/Editor:

Eun K Choi

Publication Date:

July 1, 2005

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:

This paper investigates the deindustrialization and welfare effects of infrastructure aid in developing countries. In the short run, cost-saving infrastructure aid in the export sector increases the domestic wage rate, whereas the same aid in the import sector lowers it. The cost of nontraded goods rises whether the export or the import sector receives infrastructure aid. Infrastructure aid in the nontraded sector has no effect on domestic factor prices. Laborsaving infrastructure aid causes an expansion of the export sector, while capital-saving infrastructure aid results in a Dutch disease effect in the export sector. If aid is below the optimal level, infrastructure aid increases consumer income and welfare.

Series:

Working Paper No. 2005/150

Subject:

Dutch disease Exports Imports Income Infrastructure

English

Publication Date:

July 1, 2005

ISBN/ISSN:

9781451861693/1018-5941

Stock No:

WPIEA2005150

Pages:

24

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