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Structural Change in Transition Economies: Does Foreign Aid Matter?

Author

Listed:
  • Fardmanesh, Mohsen

    (Temple University)

  • Tan, Li

    (American International Group, New York, NY)

Abstract

This paper addresses whether the initial declines in the manufacturing and real wages in transition economies were anything unexpected to justify policy reversal, and whether the "often-recommended" foreign aid would have helped them curb these declines in any significant way. It answers these questions with the help of a two-sector three-factor small open economy model and simulation exercises. It concludes that, given the relative price distortions and the market disequilibria that transition economies inherited from their planning era, the initial declines in their manufacturing and real wages are to be mostly expected. Foreign aid, whose impact is noticeable only when it is in excess of 5% of GDP, does not curb the decline in their real wages in any measurable way and exacerbates the decline in their manufacturing by a few percent.

Suggested Citation

  • Fardmanesh, Mohsen & Tan, Li, 2009. "Structural Change in Transition Economies: Does Foreign Aid Matter?," Working Papers 76, Yale University, Department of Economics.
    • Handle: RePEc:ecl:yaleco:76
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    File URL: http://economics.yale.edu/sites/default/files/files/Working-Papers/wp000/ddp0076.pdf
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    References listed on IDEAS

    as
    1. Stanley Fischer, 1991. "Economic Reform in the USS and the Role of Aid," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 289-302.
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    1. Fardmanesh, Mohsen & Tan, Li, 2009. "Structural Change in Transition Economies: Does Foreign Aid Matter?," Center Discussion Papers 56754, Yale University, Economic Growth Center.
    2. Mohsen Fardmanesh & Li Tan, 2009. "Structural Change in Transition Economies: Does Foreign Aid Matter?," Working Papers 982, Economic Growth Center, Yale University.

    More about this item

    JEL classification:

    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General

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