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

By Joong S Kang, Alessandro Prati, Alessandro Rebucci

March 20, 2013

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Joong S Kang, Alessandro Prati, and Alessandro Rebucci. Aid, Exports, and Growth: A Time-Series Perspective on the Dutch Disease Hypothesis, (USA: International Monetary Fund, 2013) accessed September 19, 2024

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.

Subject: Export performance, Exports, Foreign aid, Foreign exchange, Imports, International trade, Real exchange rates

Keywords: Aid, Aid shock, Aid-to-GDP series, Commodity export share, Common factors, Country, DD hypothesis, Dutch disease, Exchange rate overvaluation, Export, Export performance, Export response, Exports, Global, Imports, Panel VARs, Real exchange rates, VAR model, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/073
Stock No:

WPIEA2013073
ISBN:

9781484320112
ISSN:

1018-5941

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