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The Impact of Foreign Aid Linked to Infrastructure and Pollution Abatement

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  • Ilaski Barañano
  • Marta San Martín

Abstract

This paper studies the macroeconomic effects of foreign aid taking into account environmental quality. We develop a dynamic equilibrium model in which public investments in both infrastructure and pollution abatement can be co-financed using domestic resources and international aid. We consider untied aid, aid fully tied to either infrastructure or abatement and aid equally tied to both expenditures. We find that when the extent to which agents are affected by environmental problems is taken into account, then, regardless of the chances of substitution between factors, transfers linked to both infrastructure and pollution abatement may be the best welfare-enhancing alternative.

Suggested Citation

  • Ilaski Barañano & Marta San Martín, 2015. "The Impact of Foreign Aid Linked to Infrastructure and Pollution Abatement," Review of International Economics, Wiley Blackwell, vol. 23(4), pages 667-686, September.
    • Handle: RePEc:bla:reviec:v:23:y:2015:i:4:p:667-686
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    2. Mireille Chiroleu-Assouline & Mouez Fodha, 2023. "Debt, tax and environmental policy [Dette, taxe et politique environnementale]," PSE-Ecole d'économie de Paris (Postprint) halshs-04181981, HAL.

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