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The Composition of Aid and the Fiscal Sector in an Aid-Recipient Economy: A model

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  • G Mavrotas
  • B Ouattara

Abstract

Building on recent work in the fiscal response literature, the present paper develops a new fiscal response model, which, for the first time in the relevant literature, combines the ideas of both endogenous and disaggregated aid. We endogenized aid on the grounds that the recipient government has some influence over aid disbursements. Regarding aid disaggregation, it is argued that each of the main four categories of aid, namely project aid, programme aid, technical assistance and food aid may exert different effects on the recipient economy. Furthermore, in case the preferences of the aid-recipient government are higher for some of these types of aid, neglecting aid disaggregation would lead to aggregation bias in the results and conclusions. The model adds an important new dimension to the vast aid effectiveness literature and calls for further modelling as well as empirical work in this promising research area so that significant policy implications can be derived. [Discussion Paper No. 2003/11]
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  • G Mavrotas & B Ouattara, 2003. "The Composition of Aid and the Fiscal Sector in an Aid-Recipient Economy: A model," Economics Discussion Paper Series 0307, Economics, The University of Manchester.
    • Handle: RePEc:man:sespap:0307
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    References listed on IDEAS

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    6. Franco-Rodriguez, Susana & Morrissey, Oliver & McGillivray, Mark, 1998. "Aid and the Public Sector in Pakistan: Evidence with Endogenous Aid," World Development, Elsevier, vol. 26(7), pages 1241-1250, July.
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    11. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
    12. Susana Franco‐Rodriguez, 2000. "Recent developments in fiscal response with an application to Costa Rica," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 429-441, April.
    13. Akhter Ahmed, 1999. "Aid and Fiscal Behaviour in Developing Asia," Palgrave Macmillan Books, in: Mohammad Alauddin & Samiul Hasan (ed.), Development, Governance and the Environment in South Asia, chapter 8, pages 141-159, Palgrave Macmillan.
    14. Mark McGillivray & Oliver Morrissey, 2000. "Aid fungibility in Assessing Aid: red herring or true concern?," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 413-428, April.
    15. George Mavrotas, 2002. "Foreign aid and fiscal response: Does aid disaggregation matter?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 138(3), pages 534-559, September.
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    Cited by:

    1. Agénor, Pierre-Richard & Bayraktar, Nihal & El Aynaoui, Karim, 2008. "Roads out of poverty? Assessing the links between aid, public investment, growth, and poverty reduction," Journal of Development Economics, Elsevier, vol. 86(2), pages 277-295, June.
    2. George Mavrotas, 2003. "The International Finance Facility: The UK HM Treasury-DFID Proposal to Increase External Finance to Developing Countries," WIDER Working Paper Series DP2003-79, World Institute for Development Economic Research (UNU-WIDER).
    3. George Mavrotas, 2003. "Which Types of Aid Have the Most Impact?," WIDER Working Paper Series DP2003-85, World Institute for Development Economic Research (UNU-WIDER).
    4. George Mavrotas, 2005. "Aid heterogeneity: looking at aid effectiveness from a different angle," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(8), pages 1019-1036.
    5. George Mavrotas & Bazoumana Ouattara, 2003. "Aid Disaggregation, Endogenous Aid and the Public Sector in Aid-Recipient Economies: Evidence from Côte d'Ivoire," WIDER Working Paper Series DP2003-15, World Institute for Development Economic Research (UNU-WIDER).

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