The Macroeconomic Impact of Scaled-Up Aid: The Case of Niger

By Emilio Sacerdoti, Gonzalo Salinas, Abdikarim Farah

March 1, 2009

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Emilio Sacerdoti, Gonzalo Salinas, and Abdikarim Farah. The Macroeconomic Impact of Scaled-Up Aid: The Case of Niger, (USA: International Monetary Fund, 2009) accessed November 8, 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 develop a simple macroeconomic model that assesses the effects of higher foreign aid on output growth and other macroeconomic variables, including the real exchange rate. The model is easily tractable and requires estimation of only a few basic parameters. It takes into account the impact of aid on physical and human capital accumulation, while recognizing that the impact of the latter is more protracted. Application of the model to Niger-one of the poorest countries in the world-suggests that if foreign aid as a share of GDP were to be permanently increased from the equivalent of 10 percent of GDP in 2007 to 15 percent in 2008, annual economic growth would accelerate by more than 1 percentage point, without generating significant risks for macroeconomic stability. As a result, by 2020 Niger's income per capita would be 12.5 percent higher than it would be without increased foreign aid. Moreover, the higher growth would help Niger to cut the incidence of poverty by 25 percent by 2015, although the country will still be unable to reach the Millennium Development Goal of poverty reduction (MDG 1).

Subject: Aid flows, Foreign aid, Foreign exchange, Human capital, Labor, National accounts, Private investment, Real exchange rates

Keywords: Accumulation of physical capital, Aid, Aid flows, Capital accumulation, Capital mobility, Capital share, Constant returns to scale, Government physical capital, Growth, Human capital, Impact aid, Low income countries, Per capita income, Private investment, Production function, Real exchange rates, Share in income, Sub-Saharan Africa, WP

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/036
Stock No:

WPIEA2009036
ISBN:

9781451871838
ISSN:

1018-5941

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