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Business cycle fluctuations-macroeconomic shocks-development aid

Author

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  • Era Dabla-Norris
  • Camelia Minoiu
  • Luis Felipe Zanna

Abstract

We examine the cyclical properties of development aid using bilateral data for 22 donors and 113 recipients during 1970?2005. We find that bilateral aid flows are on average procyclical with respect to the business cycle in both donor and recipient countries. While aid outlays contract sharply during severe downturns in donor countries, they rise steeply when aid-receiving countries are hit by large adverse shocks. Our findings suggest that development aid plays an important cushioning role in developing countries––regardless of their income level––but only during times of severe macroeconomic stress. Our results are robust to alternate definitions of aid flows, across specifications and estimation techniques.

Suggested Citation

  • Era Dabla-Norris & Camelia Minoiu & Luis Felipe Zanna, 2011. "Business cycle fluctuations-macroeconomic shocks-development aid," NCID Working Papers 09/2011, Navarra Center for International Development, University of Navarra.
    • Handle: RePEc:nva:unnvaa:wp09-2011
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    File URL: http://ncid.unav.edu/download/file/fid/176
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    More about this item

    Keywords

    Foreign aid; bilateral donors; business cycle; macroeconomic shocks;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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