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Aid, spending strategies and productivity effects: A multi-sectoral CGE analysis for Zambia

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  • Clausen, Volker
  • Schürenberg-Frosch, Hannah

Abstract

Numerous econometric studies fail to detect a significant and robust relationship between international aid and economic growth in the recipient countries. Dutch Disease effects might be responsible for this result. This paper examines the relation between aid and its effectiveness in a multi-sector multi-household Computable General Equilibrium (CGE)-framework. Given that international transfers to African countries increasingly take the form of general financial support to the government, different spending strategies and their macroeconomic, sectoral and distributional effects are evaluated in a two-stage simulation making a distinction between immediate direct effects and possible long-run effects from increased productivity. The presence of sector-specific factors weakens Dutch Disease effects and shifts the burden of adjustment primarily to other exporting sectors. While the model simulates the effects of additional aid in Zambia it can be used as a blueprint for other African countries.

Suggested Citation

  • Clausen, Volker & Schürenberg-Frosch, Hannah, 2012. "Aid, spending strategies and productivity effects: A multi-sectoral CGE analysis for Zambia," Economic Modelling, Elsevier, vol. 29(6), pages 2254-2268.
    • Handle: RePEc:eee:ecmode:v:29:y:2012:i:6:p:2254-2268
    DOI: 10.1016/j.econmod.2012.06.018
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    More about this item

    Keywords

    Africa; Zambia; Aid; Applied general equilibrium; Dutch Disease; Productivity; Sector-specific capital;
    All these keywords.

    JEL classification:

    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • F35 - International Economics - - International Finance - - - Foreign Aid

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