Foreign Aid and the Business Cycle

CREFE Research Paper No. 63

Posted: 19 Sep 1998

See all articles by Michel A. Robe

Michel A. Robe

University of Illinois at Urbana-Champaign

Stephane Pallage

University of Quebec at Montreal - Department of Economics; Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE)

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Abstract

We document the real business cycle properties of foreign aid to poor countries. We show that aid exhibits the following empirical regularities over a twenty-five year period. First, it represents a significant source of income for the recipients. Second, it is very volatile--two to three times as volatile as output. Third, for the vast majority of recipient countries in our sample, aid disbursements are procyclical. Whatever the intended purpose of aid, this procyclicality suggests that aid ends up acting as a reward (punishment) for good (bad) economic performance. In contrast, there is no clear pattern of procyclicality with the business cycle of the donors.

JEL Classification: E32, F35

Suggested Citation

Robe, Michel A. and Pallage, Stephane, Foreign Aid and the Business Cycle. CREFE Research Paper No. 63, Available at SSRN: https://ssrn.com/abstract=100790

Michel A. Robe (Contact Author)

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL 61820
United States

Stephane Pallage

University of Quebec at Montreal - Department of Economics ( email )

P.O. Box 8888, Downtown Station
Montreal, Quebec H3C 3P8
Canada
514-987-3000 ext. 8730 (Phone)
514-987-8494 (Fax)

Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE)

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Ste-Foy, Quebec G1K 7P4
Canada

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