Aid, Exports, and Growth: A Time-Series Perspective on the Dutch Disease Hypothesis

30 Pages Posted: 9 Apr 2013

See all articles by Alessandro Prati

Alessandro Prati

International Monetary Fund (IMF) - Research Department, Deceased

Alessandro Rebucci

Johns Hopkins University - Carey Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Joong Shik Kang

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2013

Abstract

We use a heterogeneous panel VAR model identified through factor analysis to study the dynamic response of exports, imports, and per capita GDP growth to a “global” aid shock. We find that a global aid shock can affect exports, imports, and growth either positively or negatively. As a result, the relation between aid and growth is mixed, consistent with the ambiguous results in the existing literature. For most countries in the sample, when aid reduces exports and imports, it also reduces growth; and, when aid increases exports and imports, it also increases growth. This evidence is consistent with a DD hypothesis, but also shows that aid-receiving countries are not “doomed” to catch DD.

JEL Classification: F35, F43, O11

Suggested Citation

Prati, Alessandro and Rebucci, Alessandro and Kang, Joong Shik, Aid, Exports, and Growth: A Time-Series Perspective on the Dutch Disease Hypothesis (March 2013). IMF Working Paper No. 13/73, Available at SSRN: https://ssrn.com/abstract=2247225

Alessandro Prati

International Monetary Fund (IMF) - Research Department, Deceased ( email )

Alessandro Rebucci

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://carey.jhu.edu/faculty-research/faculty-directory/alessandro-rebucci-phd

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Joong Shik Kang

International Monetary Fund (IMF) ( email )

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

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