Macroeconomic impact of foreign aid to developing countries

The thesis looks at the macroeconomic impact of foreign aid. It is specially concerned with aid's impact on the public sector of less developed countries < LDCs> . Since the overwhelming majority of aid is directed to the public sector of LDCs, one can only understand the broader macroeconomic impact of aid if one first understands its impact on this sector. To this end, the thesis econometrically estimates " fiscal response" models of aid. These models, in essence, attempt to shed light on public sector fiscal behaviour in the presence of aid inflows, being specially concerned with the way aid is used to finance various categories of expenditures. The underlaying concern is to extent to which aid is " fungible" -that is, whether it finances consumption expenditure and reductions in taxation revenue in LDCs. A number of alternative models are derived from a utility maximisation framework. These alternatives reflect different assumptions regarding the behaviour of LDC public sectors and relate to the endogeniety of aid, whether or not recurrent expenditure is financed from domestic borrowing and the determination of domestic borrowing. The original frameworks of earlier studies are extended in a number of ways, including the use of a public sector utility function which is fully consistent with expected maximising behaviour. Estimates of these models' parameters are obtained using both time-series and cross-section data, dating from the 1960s, for Bangladesh, India, Pakistan and the Philippines. Both structural and reduced-form equations are estimated. Results suggest that foreign aid foreign inflows to the official sector> is indeed fungible, albeit at different levels. Moreover, the overall impact of aid on public sector investment, consumption, domestic borrowing and taxation varies between countries. Generally speaking, aid leads to increases in investment and consumption expenditure, but reduces taxation and domestic borrowing. Comparative analysis does, however, show that these results are highly sensitive to alternative behavioural assumptions and, therefore, model specification.

Foreign aid, wage inequality and welfare for a small open economy with tourism

While the welfare effect of foreign aid has been extensively analyzed, the impact on the distribution of income has received less attention. At the same time, there has been recent work on tourism where it is complementary to aid in improving welfare.By combining these two strands, this paper concentrates on wage inequality in developing countries.We find that an increase in aid in the form of tied aid can lower the relative price of nontraded goods. The rent extracted from tourists declines, reducing welfare of domestic residents. In addition, the fall in the nontradable price can widen the wage inequality between skilled and unskilled workers.Thus, increased foreign aid may have detrimental effects on national welfare and the distribution of income. Rising wage inequality is confirmed by numerical simulations.

Scaling-up foreign aid : will the 'big push' work?

International donors are substantially scaling-up aid programmes. At the same time, there are widespread reservations over how much aid recipient countries can use effectively. Such concerns are supported by the aid effectiveness literature which finds that there are limits to the amounts of aid recipients can efficiently absorb. This article demonstrates that a ‘big push’ in foreign aid will not lead to diminishing returns as long as donors get the inter-country allocation of aid right. This is true even if donors provide aid at levels equal to the well-known target of 0.7 per cent of their gross national income

Foreign aid, leisure-effort choice, and economic growth

Using an endogenous growth model, this paper examines the growth and welfare effects of foreign aid in the recipient economy. The emphasis is on the incentive factor of the effort-leisure choice. Besides financing public services, part of the aid is transferred to the public. This increases individual wealth, thereby providing less incentives to individuals for human capital acquisition, but with more leisure. Thus, foreign aid may not always help the growth and welfare of the economy. Taking this incentive factor into account, we further study the issue on aid allocation in achieving the highest levels of growth and welfare. Along the balanced growth path, aid allocation for welfare maximization is different from that under growth maximization.

Assessing the impact of foreign aid: value for money and aid for trade

 Assessing the Impact of Foreign Aid: Value for Money and Aid for Trade provides updated information on how to improve foreign aid programs, exploring the concept and practice of impact assessment within the sometimes-unproblematic approaches advocated in current literature of value for money and aid for trade.
Contributors from multi-lateral agencies and NGOs discuss the changing patterns of Official Development Assistance and their effects on impact assessment, providing theoretical, political, structural, methodological, and practical frameworks, discussions, and a theory-practice nexus.
With twin foci of economics and policy this book raises the potential for making sophisticated and coherent decisions on aid allocation to developing countries.

Impact of four foreign aided projects on developments in secondary education in Bangladesh

Examines four foreign aided development projects in the secondary education sub-sector in Bangladesh. Investigates planning and implementation practices employed during the life of the four projects in order to identify factors likely to lead to greater sustainability of development projects financed with foreign aid. A major concern was how foreign aided projects sustain, or lack the means to sustain, developments that have begun when project funding ceases.

Aid, economic reform, and public sector fiscal behaviour in developing countries

This paper looks at interactions between foreign development aid, economic reform, and public sector fiscal behavior. It proposes a model of the public sector fiscal response to aid inflows, which allows for changes in structural relationships due to an exogenously imposed program of economic reform. This model is applied to 1960–99 time series data for the Philippines, which embarked on an IMF- and World Bank-funded structural adjustment program in 1980. Estimates of structural and reduced-form equations paint a dismal picture of the effectiveness of foreign aid to, and the structural adjustment program in, the Philippines so far as fiscal impacts are concerned. Both bilateral and multilateral aid inflows, and the presence of an economic reform program, are associated with decreases in public fixed capital expenditure, decreases in taxation and other recurrent revenue, and decreases in public sector saving. Multilateral aid also appears to be highly fungible.

Modelling inter-temporal aid allocation : a new application with a focus on Papua New Guinea

This paper models the inter-temporal allocation of foreign development aid to Papua New Guinea (PNG). A formal theoretical model of aid allocation is developed, in which aid to any one country is determined jointly with aid to all other recipient countries. This is recognized in the econometric application of this model, which involves simultaneously modelling aid to a number of countries in addition to PNG. Results based on data for the period 1969–99 indicate that both recipient need and donor interest variables determine the amount of foreign aid to PNG and most other countries under consideration.

What determines bilateral aid allocations? New evidence for time series data

This paper models the allocation of bilateral foreign development aid to developing countries. A simple theoretical framework is developed, in which aid is treated as a private good of a donor country bureaucratic group responsible for bilateral aid allocation. This model is applied to time series data for ten principal recipients of bilateral official development assistance. Features of this application are that it caters for the joint determination of aid allocations and for donor allocation behavior to differ among individual recipient countries. Results indicate that both recipient need and donor interest variables determine the amount of foreign aid to developing countries, and that donor allocation behavior often differs markedly among recipients.