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Infrastructure Aid, Deindustrialization, and Welfare

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  • Mr. Eun K Choi

Abstract

This paper investigates the deindustrialization and welfare effects of infrastructure aid in developing countries. In the short run, cost-saving infrastructure aid in the export sector increases the domestic wage rate, whereas the same aid in the import sector lowers it. The cost of nontraded goods rises whether the export or the import sector receives infrastructure aid. Infrastructure aid in the nontraded sector has no effect on domestic factor prices. Laborsaving infrastructure aid causes an expansion of the export sector, while capital-saving infrastructure aid results in a Dutch disease effect in the export sector. If aid is below the optimal level, infrastructure aid increases consumer income and welfare.

Suggested Citation

  • Mr. Eun K Choi, 2005. "Infrastructure Aid, Deindustrialization, and Welfare," IMF Working Papers 2005/150, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2005/150
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    Cited by:

    1. Hudson, John, 2015. "Consequences of Aid Volatility for Macroeconomic Management and Aid Effectiveness," World Development, Elsevier, vol. 69(C), pages 62-74.

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