## Business Cycle Fluctuations, Large Shocks, and Development Aid: New Evidence

_IMF Working Papers, October 1, 2010_

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**Canonical URL:** [Business Cycle Fluctuations, Large Shocks, and Development Aid: New Evidence](https://www.imf.org/en/publications/wp/issues/2016/12/31/business-cycle-fluctuations-large-shocks-and-development-aid-new-evidence-24303)

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## Bibliographic details
- Authors: Era Dabla-Norris, Camelia Minoiu, Luis-Felipe Zanna
- Published: October 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455209408.001

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### Data and scope
- Bilateral data for 22 donors and over 100 recipients during 1970?2005.
- Working Paper authors: Era Dabla-Norris, Camelia Minoiu, Luis-Felipe Zanna.
- Publication date: October 1, 2010.
- Series: Working Paper No. 2010/240; Pages: 39; Issue: 240; ISBN: 9781455209408; ISSN: 1018-5941; DOI: https://doi.org/10.5089/9781455209408.001.

### Key empirical findings
- On average, bilateral aid flows are procyclical with respect to business cycles in donor and recipient countries.
- Bilateral aid becomes countercyclical when recipient countries face large adverse shocks:
  - Specifically, countercyclical responses occur during large adverse shocks to the terms-of-trade or growth collapses, indicating an important cushioning role for aid.
- Aid outlays contract sharply during severe donor economic downturns.
  - The contraction effect is magnified by higher public debt levels in donor countries.
- Bilateral aid flows are higher in the presence of IMF programs.
- Bilateral aid flows are more countercyclical for recipient countries with stronger institutions.

### Subject areas and keywords
- Subject: Aid flows, Business cycles, Development assistance, Foreign aid, Output gap.
- Keywords: aid outlay, country, donor output gap, recipient country, recipient cycle, WP.

### Implications (policy-relevant)
- Development aid can provide countercyclical cushioning in recipient countries subject to large adverse shocks to terms-of-trade or growth collapses.
- Fiscal vulnerabilities in donors (higher public debt) amplify aid reductions during severe donor downturns, suggesting a risk to aid reliability in crises.
- IMF program presence is associated with higher bilateral aid flows, indicating potential complementarities between IMF engagement and bilateral assistance.
- Strengthening recipient-country institutions may enhance the countercyclical properties of bilateral aid.

*Business Cycle Fluctuations, Large Shocks, and Development Aid: New Evidence — Era Dabla-Norris, Camelia Minoiu, Luis-Felipe Zanna; IMF Working Papers, October 1, 2010.*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/business-cycle-fluctuations-large-shocks-and-development-aid-new-evidence-24303_