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Tied Aid and Welfare

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  • Kenzo Abe
  • Yasuhiro Takarada

Abstract

In this paper we present a model of tied aid to shed light on the dispute between Kemp and Kojima (1985) and Schweinberger (1990) and to complement their analyses. We show that if the households of the recipient country are not informed of the transfers at their consumption decision, they have an incentive to trade the purchased goods from their domestic production income whenever transfer paradoxes occur. We also demonstrate that when they are aware of the transfers and can trade the purchased goods from their production income, there are no transfer paradoxes under the normality condition of commodities.

Suggested Citation

  • Kenzo Abe & Yasuhiro Takarada, 2005. "Tied Aid and Welfare," Review of International Economics, Wiley Blackwell, vol. 13(5), pages 964-972, November.
    • Handle: RePEc:bla:reviec:v:13:y:2005:i:5:p:964-972
    DOI: 10.1111/j.1467-9396.2005.00547.x
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    Cited by:

    1. Liu, Ailan & Tang, Bo, 2018. "US and China aid to Africa: Impact on the donor-recipient trade relations," China Economic Review, Elsevier, vol. 48(C), pages 46-65.
    2. Yasuhiro Takarada, 2007. "Welfare effects of international income transfers under transboundary pollution," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 8(2), pages 143-157, June.
    3. Kim, Sang-Kee & Kim, Young-Han, 2016. "Is tied aid bad for the recipient countries?," Economic Modelling, Elsevier, vol. 53(C), pages 289-301.
    4. Yasuhiro Takarada, 2007. "Welfare effects of international income transfers under transboundary pollution," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 8(2), pages 143-157, June.
    5. Thorsten Janus, 2009. "Aid and the Soft Budget Constraint," Review of Development Economics, Wiley Blackwell, vol. 13(2), pages 264-275, May.

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