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Foreign Aid : Where Your Money Could Be ? An Optimal Two-Sector Growth Model Out Lining a Simple Answer

Author

Listed:
  • Raul FUENTES

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

In this paper, we present an optimal two-sector growth model involving foreign aid as an input into the production function. We characterize the optimal resources allocation across sectors. Once calibrated, mainly, on Latin America, countries, the model exhibits weak substitutability between aid and capital stock. Nonetheless, using numerical simulations, the model reproduces the main stylized facts outlined in the literature.

Suggested Citation

  • Raul FUENTES, 2003. "Foreign Aid : Where Your Money Could Be ? An Optimal Two-Sector Growth Model Out Lining a Simple Answer," LIDAM Discussion Papers IRES 2004003, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:2004003
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    File URL: http://sites.uclouvain.be/econ/DP/IRES/2004-3.pdf
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    References listed on IDEAS

    as
    1. Alesina, Alberto & Dollar, David, 2000. "Who Gives Foreign Aid to Whom and Why?," Journal of Economic Growth, Springer, vol. 5(1), pages 33-63, March.
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    3. Easterly, William, 1999. "The ghost of financing gap: testing the growth model used in the international financial institutions," Journal of Development Economics, Elsevier, vol. 60(2), pages 423-438, December.
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    5. Knight, Malcolm & Santaella, Julio A., 1997. "Economic determinants of IMF financial arrangements," Journal of Development Economics, Elsevier, vol. 54(2), pages 405-436, December.
    6. Corbo, Vittorio & Fischer, Stanley, 1995. "Structural adjustment, stabilization and policy reform: Domestic and international finance," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 44, pages 2845-2924, Elsevier.
    7. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
    8. Przeworski, Adam & Vreeland, James Raymond, 2000. "The effect of IMF programs on economic growth," Journal of Development Economics, Elsevier, vol. 62(2), pages 385-421, August.
    9. Barro, Robert J. & Lee, Jong-Wha, 2005. "IMF programs: Who is chosen and what are the effects?," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1245-1269, October.
    10. Benhabib, Jess & Farmer, Roger E. A., 1996. "Indeterminacy and sector-specific externalities," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 421-443, June.
    11. Zaki, Mokhlis Y., 2001. "IMF-Supported Stabilization Programs and their Critics: Evidence from the Recent Experience of Egypt," World Development, Elsevier, vol. 29(11), pages 1867-1883, November.
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    More about this item

    Keywords

    Foreign Aid; Economic Development; Investment; Economic Growth; Quantitative Approach;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O21 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Planning Models; Planning Policy
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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