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Immiserizing Foreign Aid: The Role of Tariffs and Nontraded Goods

Author/Editor: Tokarick, Stephen
Authorized for Distribution: May 1, 2006
Electronic Access: Free Full Text (PDF file size is 281KB)
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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: International trade theory has pointed out that factor accumulation could immiserize a country if it is sufficiently biased toward the export sector, or if it is biased toward an importcompeting sector in the presence of tariff protection. This paper analyzes the impact of aid, in the form of an increase in the capital stock used only in the nontraded sector, on real income. Yano and Nugent (1999) discussed this issue, but their analysis turned out to be incorrect. This paper demonstrates that whether aid in the form of an increase in capital specific to the nontraded sector reduces welfare depends on how aid affects the price of the nontraded good and on whether imports and the nontraded good are substitutes or complements in demand.
 
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Series: Working Paper No. 06/129
Subject(s): Development assistance | Tariffs | International trade | Economic models
Author's keyword(s): Foreign aid | welfare effects | tariffs | nontraded goods
 
English  
    Published:   May 1, 2006        
    ISBN/ISSN:   0 / 1934-7073   Format:   Paper
    Stock No:   WPIEA2006129   Pages:   17
    Price:   US$15.00 (Academic Rate: US$15.00 )
       
     
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