Aid and Sectoral Growth: Evidence from Panel Data

Journal of Development Studies 46(10): 1749-1966

Posted: 31 May 2012

See all articles by Pablo Selaya

Pablo Selaya

University of Copenhagen

Rainer Thiele

Kiel Institute for the World Economy

Date Written: November 2010

Abstract

This article examines empirically the proposition that aid to poor countries is detrimental for external competitiveness, giving rise to Dutch disease type effects. At the aggregate level, aid is found to have a positive effect on growth. A sectoral decomposition shows that the effect is (i) significant and positive in the tradable and the nontradable sectors, and (ii) equally strong in both sectors. The article thus provides no empirical support for the hypothesis that aid reduces external competitiveness in developing countries. A possible reason for this finding is the existence of large idle labour capacity that prevents the real exchange rate from appreciating.

Keywords: Foreign aid, sectoral growth, dutch disease

JEL Classification: F35

Suggested Citation

Selaya, Pablo and Thiele, Rainer, Aid and Sectoral Growth: Evidence from Panel Data (November 2010). Journal of Development Studies 46(10): 1749-1966. Available at SSRN: https://ssrn.com/abstract=2071122

Pablo Selaya (Contact Author)

University of Copenhagen ( email )

Department of Economics
Øster Farimagsgade 5
Copenhagen, 1353
Denmark

HOME PAGE: http://www.econ.ku.dk/pabloselaya

Rainer Thiele

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, D-24100
Germany
+49 431 8814 215 (Phone)
+49 431 8814 500 (Fax)

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