Aid, Disbursement Delays, and the Real Exchange Rate

29 Pages Posted: 20 Apr 2016

See all articles by Alexandra Jarotschkin

Alexandra Jarotschkin

World Bank

Aart Kraay

World Bank - Development Research Group (DECRG)

Date Written: June 1, 2013

Abstract

Aid donors and recipients have long been concerned that aid inflows may lead to an appreciation of the real exchange rate and an associated loss of competitiveness. This paper provides new evidence of the dynamic effects of aid on the real exchange rate, using an identification strategy that exploits the long delays between the approval of aid projects and the subsequent disbursements on them. These disbursement delays enable the isolation of a source of variation in aid inflows that is uncorrelated with contemporaneous macroeconomic shocks that may drive both aid and the real exchange rate. Using this predetermined component of aid as an instrument, there is little evidence that aid inflows lead to significant real exchange rate appreciations.

Keywords: Macroeconomic Management, Debt Markets, Economic Stabilization, Emerging Markets, Economic Theory & Research

Suggested Citation

Jarotschkin, Alexandra and Kraay, Aart, Aid, Disbursement Delays, and the Real Exchange Rate (June 1, 2013). World Bank Policy Research Working Paper No. 6501. Available at SSRN: https://ssrn.com/abstract=2285317

Alexandra Jarotschkin (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States
202-473-7214 (Phone)

Aart Kraay

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-473-5756 (Phone)
202-522-3518 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/akraay

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