Immiserizing Foreign Aid : The Roles of Tariffs and Nontraded Goods

Author/Editor:

Stephen Tokarick

Publication Date:

May 1, 2006

Electronic Access:

Download PDF. Use the free Adobe Acrobat Reader to view this PDF file

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.

Series:

Working Paper No. 06/129

Subject:

English

Publication Date:

May 1, 2006

ISBN/ISSN:

9781451863895/1018-5941

Stock No:

WPIEA2006129

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

17

Please address any questions about this title to publications@imf.org