{ "title": "The Macroeconomics of Medium-Term Aid Scaling-Up Scenarios", "publication": "IMF Working Papers, July 1, 2010", "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/the-macroeconomics-of-medium-term-aid-scaling-up-scenarios-24037", "canonical": "https://www.imf.org/en/publications/wp/issues/2016/12/31/the-macroeconomics-of-medium-term-aid-scaling-up-scenarios-24037", "overlayPath": "/en/publications/wp/issues/2016/12/31/the-macroeconomics-of-medium-term-aid-scaling-up-scenarios-24037/index.md", "summary": "We develop a model to analyze the macroeconomic effects of a scaling-up of aid and assess the implications of different policy responses.", "sections": [ { "heading": "Model structure and calibration", "content": "- The model analyzes the macroeconomic effects of a scaling-up of aid and the implications of different policy responses.\n- Key structural characteristics included:\n - varying degrees of public investment efficiency\n - a learning-by-doing (LBD) externality that captures Dutch disease effects\n- Policy distinctions:\n - \"Spending the aid\" — controlled by the fiscal authority\n - \"Absorbing the aid\" — financing a higher current account deficit, influenced by the central bank's reserve accumulation policies\n- Calibration:\n - The model is calibrated to Uganda and several experiments are run." }, { "heading": "Experimental scenarios and mechanisms", "content": "- Full spending and full absorption of aid\n - Results in temporary demand pressures\n - Results in real exchange rate appreciation pressures\n - Generates positive effects on real GDP in the medium term through higher public capital\n- Full spending with partial absorption\n - May stem appreciation pressures\n - May induce adverse medium-term real GDP effects via private sector crowding out\n- Very inefficient public investment combined with strong LBD externalities\n - Aid can be harmful\n - Partial absorption policies may be justified\n - Alternative policy responses: defer spending or raise spending efficiency" }, { "heading": "Main findings", "content": "- A policy mix that results in full spending and absorption of aid:\n - Can generate temporary demand and real exchange rate appreciation pressures\n - Can have a positive effect on real GDP in the medium term through higher public capital\n- Full spending with partial absorption:\n - Can stem appreciation pressures\n - Can induce adverse medium-term real GDP effects through private sector crowding out\n- When aid is very inefficiently invested and LBD externalities are strong:\n - Aid can be harmful\n - Partial absorption policies may be justified\n - Welfare-improving alternatives include deferring spending or raising its efficiency" }, { "heading": "Policy implications and recommendations", "content": "- Where public investment is reasonably efficient and LBD externalities are not dominant:\n - Consider policies that allow both spending and absorption to realize medium-term GDP gains from higher public capital, while managing temporary demand and exchange rate pressures\n- Where public investment is very inefficient or LBD externalities are strong:\n - Partial absorption policies may be warranted to avoid harm\n - Preferable policy responses include:\n - Deferring spending\n - Raising public investment efficiency if possible\n\nThe Macroeconomics of Medium-Term Aid Scaling-Up Scenarios — Rafael A Portillo, Andrew Berg, Jan Gottschalk, Luis-Felipe Zanna; July 1, 2010.\n\n---\n\n Content in this bundle\n\n- wp10160\n - wp10160 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - wp10160 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/the-macroeconomics-of-medium-term-aid-scaling-up-scenarios-24037" } ], "bullets": [ "[Markdown version](/en/publications/wp/issues/2016/12/31/the-macroeconomics-of-medium-term-aid-scaling-up-scenarios-24037/index.md)", "[Structured JSON version](/en/publications/wp/issues/2016/12/31/the-macroeconomics-of-medium-term-aid-scaling-up-scenarios-24037/index.json)", "[Bundle manifest](/en/publications/wp/issues/2016/12/31/the-macroeconomics-of-medium-term-aid-scaling-up-scenarios-24037/bundle-manifest.json)", "Authors: Rafael A Portillo, Andrew Berg, Jan Gottschalk, Luis-Felipe Zanna", "Published: July 1, 2010", "Series: IMF Working Papers", "DOI: https://doi.org/10.5089/9781455201433.001", "The model analyzes the macroeconomic effects of a scaling-up of aid and the implications of different policy responses.", "Key structural characteristics included:", "Policy distinctions:", "Calibration:", "Full spending and full absorption of aid", "Full spending with partial absorption", "Very inefficient public investment combined with strong LBD externalities", "A policy mix that results in full spending and absorption of aid:", "Full spending with partial absorption:", "When aid is very inefficiently invested and LBD externalities are strong:", "Where public investment is reasonably efficient and LBD externalities are not dominant:", "Where public investment is very inefficient or LBD externalities are strong:", "**_wp10160**" ], "related": [ { "title": "_wp10160", "role": "document", "sourceUrl": "https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2010/_wp10160.pdf", "summary": { "path": "/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2010/_wp10160.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2010/_wp10160.pdf", "mime": "application/pdf" } } ], "alternates": { "markdown": "/en/publications/wp/issues/2016/12/31/the-macroeconomics-of-medium-term-aid-scaling-up-scenarios-24037/index.md", "json": "/en/publications/wp/issues/2016/12/31/the-macroeconomics-of-medium-term-aid-scaling-up-scenarios-24037/index.json", "bundleManifest": "/en/publications/wp/issues/2016/12/31/the-macroeconomics-of-medium-term-aid-scaling-up-scenarios-24037/bundle-manifest.json" }, "generatedAtUtc": "2026-09-18T08:14:40.076Z" }