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

40 Pages Posted: 10 Nov 2010 Last revised: 15 Mar 2016

See all articles by Era Dabla-Norris

Era Dabla-Norris

International Monetary Fund (IMF)

Camelia Minoiu

Federal Reserve Board

Luis-Felipe Zanna

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: November 8, 2010

Abstract

We examine the cyclical properties of development aid using bilateral data for 22 donors and over 100 recipients during 1970‒2005. We find that bilateral aid flows are on average pro-cyclical with respect to business cycles in donor and recipient countries. However, they become counter-cyclical when recipient countries face large adverse shocks to the terms-of-trade or growth collapses - thus playing an important cushioning role. Aid outlays contract sharply during severe donor economic downturns; this effect is magnified by higher public debt levels. Additionally, bilateral aid flows are higher in the presence of IMF programs and are more counter-cyclical for recipient countries with stronger institutions.

Keywords: foreign aid, bilateral donors, business cycle, macroeconomic shocks

JEL Classification: E22, E32, O11, O19

Suggested Citation

Dabla-Norris, Era and Minoiu, Camelia and Zanna, Luis-Felipe, Business Cycle Fluctuations, Large Shocks, and Development Aid: New Evidence (November 8, 2010). IMF Working Paper No. 10/240. Available at SSRN: https://ssrn.com/abstract=1705586 or http://dx.doi.org/10.2139/ssrn.1705586

Era Dabla-Norris

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Camelia Minoiu (Contact Author)

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Luis-Felipe Zanna

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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