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Short-Period Macroeconomic Aspects of Foreign Aid

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  • Bhaduri, Amit
  • Skarstein, Rune

Abstract

By concentrating on the supply side, the existing literature on foreign aid, e.g. the Two Gap or the Dutch Disease model, neglected the role that foreign aid might also play in influencing the level of domestic demand. This paper redresses the balance. It analyses the role of foreign aid in the short period by incorporating problems of both effective demand and supply side constraints. The analysis shows how and why aid can be useful or wasteful, especially in the context of economic liberalization. This may, for example, imply that an increase in foreign aid has to be combined with an appropriate expansionary domestic demand policy in order to stimulate domestic employment and output. (c) 1996 Academic Press Limited Copyright 1996 by Oxford University Press.

Suggested Citation

  • Bhaduri, Amit & Skarstein, Rune, 1996. "Short-Period Macroeconomic Aspects of Foreign Aid," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 20(2), pages 195-206, March.
    • Handle: RePEc:oup:cambje:v:20:y:1996:i:2:p:195-206
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    Cited by:

    1. Steven Brakman & Charles Van Marrewijk, 2007. "Transfers, Nontraded Goods, and Unemployment: An Analysis of the Keynes-Ohlin Debate," History of Political Economy, Duke University Press, vol. 39(1), pages 121-143, Spring.
    2. Luiz Carlos Bresser-Pereira & Yoshiaki Nakano, 2003. "Economic growth with foreign savings?," Brazilian Journal of Political Economy, Center of Political Economy, vol. 23(2), pages 163-188.

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