Can Foreign Aid Accelerate Stabilization?
29 Pages Posted: 30 Dec 2000 Last revised: 1 May 2022
Date Written: April 1994
Abstract
This paper studies the effect of foreign aid on economic stabilization. Following Alesina and Drazen (1991), we model the delay in stabilizing as the result of a distributional struggle: reforms are postponed because they are costly and each distributional faction hopes to reduce its share of the cost by outlasting its opponents in obstructing the required policies. Since the delay is used to signal each faction's strength, the effect of the transfer depends on the role it plays in the release of information. We show that this role depends on the timing of the transfer: foreign aid decided and transferred sufficiently early into the game leads to earlier stabilization; but aid decided or transferred too late is destabilizing and encourages further postponement of reforms.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
By A. Craig Burnside and David Dollar
-
Aid, Policies, and Growth: Revisiting the Evidence
By A. Craig Burnside and David Dollar
-
Who Gives Foreign Aid to Whom and Why?
By Alberto F. Alesina and David Dollar
-
Aid Allocation and Poverty Reduction
By David Dollar and Paul Collier
-
Aid and Growth: What Does the Cross-Country Evidence Really Show?
-
Aid and Growth: What Does the Cross-Country Evidence Really Show?
-
New Data, New Doubts: Revisiting 'Aid, Policies, and Growth'
By William Easterly, Ross Levine, ...
-
New Data, New Doubts: A Comment on Burnside and Dollar's "Aid, Policies, and Growth" (2000)
By William Easterly, Ross Levine, ...