Post-Conflict Aid, Real Exchange Rate Adjustment, and Catch-Up Growth
44 Pages Posted: 20 Apr 2016
Date Written: April 1, 2007
Post-conflict countries receive substantial aid flows after the start of peace. While post-conflict countries' capacity to absorb aid (that is, the quality of their policies and institutions) is built up only gradually after the onset of peace, the evidence suggests that aid tends to peak immediately after peace is attained and decline thereafter. Aid composition broadly reflects post-conflict priorities, with large parts of aid financing social expenditure and infrastructure investment. Aid has significant short-term effects on the real exchange rate (RER), as inferred from the behavior of RER in the world. While moderate RER overvaluation is observed in post-conflicts, it cannot be traced down to the aid flows. The empirical evidence on world growth reveals new findings about the pattern of catch-up growth during post-conflicts and the role of key growth determinants on post-conflict growth. Aid is an important determinant of growth, both generally and more strongly during post-conflict periods. Because RER misalignment reduces growth, RER overvaluation during post-conflicts reduces catch-up growth. Aid and RER overvaluation combined also lower growth. But the negative growth effect of RER overvaluation declines with financial development.
Keywords: Social Conflict and Violence, Economic Theory & Research, Development Economics & Aid Effectiveness, Post Conflict Reintegration, Pro-Poor Growth and Inequality
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
International Evidence on Tradables and Nontradables Inflation
Relative Labor Productivity and the Real Exchange Rate in the Long Run: Evidence for a Panel of OECD Countries
By Matthew B. Canzoneri, Robert E. Cumby, ...
International Evidence on Tradables and Nontradable Inflation
Exchange Rates and Economic Fundamentals: A Methodological Comparison of Beers and Feers
By Peter B. Clark and Ronald Macdonald
Real Exchange Rates in the Developing Countries: Concepts and Measure- Ment
The EMS, the Emu, and the Transition to a Common Currency
By Kenneth Froot and Kenneth Rogoff
Real Exchange Rates and Productivity Growth in the United States and Japan
Asset Markets, Exchange Rates and the Balance of Payments
By Jacob A. Frenkel and Michael L. Mussa
Global Equilibrium Exchange Rates: Euro, Dollar, 'Ins', 'Outs', and Other Major Currencies in a Panel Cointegration Framework
By Enrique Alberola, Humberto Lopez, ...
Long-Run Exchange Rate Modeling: A Survey of the Recent Evidence