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

40 Pages Posted: 1 Feb 2011

See all articles by Camelia Minoiu

Camelia Minoiu

Federal Reserve Board

Luis-Felipe Zanna

International Monetary Fund (IMF)

Era Dabla-Norris

International Monetary Fund (IMF)

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Date Written: October 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 procyclical with respect to business cycles in donor and recipient countries. However, they become countercyclical 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 countercyclical for recipient countries with stronger institutions.

Keywords: Aid flows, Bilateral aid, Business cycles, Developed countries, Developing countries, Development assistance, Economic growth, Economic models, External shocks, Fund, Terms of trade

Suggested Citation

Minoiu, Camelia and Zanna, Luis-Felipe and Dabla-Norris, Era, Business Cycle Fluctuations, Large Shocks, and Development Aid: New Evidence (October 2010). IMF Working Papers, Vol. , pp. 1-39, 2010. Available at SSRN: https://ssrn.com/abstract=1750729

Camelia Minoiu (Contact Author)

Federal Reserve Board ( email )

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Washington, DC 20551
United States

Luis-Felipe Zanna

International Monetary Fund (IMF) ( email )

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

Era Dabla-Norris

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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