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Aid and Dutch Disease in Sub-Saharan Africa

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  • David Fielding

    (Department of Economics, University of Otago)

  • Fred Gibson

    (Department of Economics, University of Otago)

Abstract

International aid has an ambiguous effect on the macro-economy of the recipient country. To the extent that aid raises consumer expenditure, there will be some real exchange rate appreciation and a shift of resources away from traded goods production and into non-traded goods production. However, aid for investment in the traded goods sector can mitigate this effect. Also, a relatively high level of productivity in the non-traded goods sector combined with a high level of investment will tend to depreciate the real exchange rate. We examine aid inflows in 26 SubSaharan African countries, and find a variety of macro-economic responses. Some of the variation in the responses can be explained by variation in observable country characteristics; this has implications for donor policy.

Suggested Citation

  • David Fielding & Fred Gibson, 2011. "Aid and Dutch Disease in Sub-Saharan Africa," Working Papers 1108, University of Otago, Department of Economics, revised Aug 2011.
    • Handle: RePEc:otg:wpaper:1108
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    Cited by:

    1. Edouard Mien & Michaël Goujon, 2022. "40 Years of Dutch Disease Literature: Lessons for Developing Countries," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 64(3), pages 351-383, September.
    2. Edouard Mien, 2020. "External and Internal Real Exchange Rates and the Dutch Disease in Africa: Evidence from a Panel of Nine Oil-Exporting Countries," Working Papers hal-03013571, HAL.
    3. Oliver Morrissey & Lionel Roger & Lars Spreng, 2019. "Aid and exchange rates in sub-Saharan Africa: No more Dutch Disease?," Discussion Papers 2019-07, University of Nottingham, CREDIT.
    4. Muntasir Murshed & Seemran Rashid, 2020. "An Empirical Investigation of Real Exchange Rate Responses to Foreign Currency Inflows: Revisiting the Dutch Disease Phenomenon in South Asia," The Economics and Finance Letters, Conscientia Beam, vol. 7(1), pages 23-46.
    5. Sèna Kimm Gnangnon, 2020. "Development aid, remittances inflows and wages in the manufacturing sector," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 22(2), pages 278-304, December.
    6. Thomas Goda & Alejandro Torres, 2013. "Tasa de cambio real y recomposición sectorial en Colombia," Documentos de Trabajo de Valor Público 10936, Universidad EAFIT.
    7. Chance Mwabutwa & Nicola Viegi & Manoel Bittencourt, 2012. "Monetary Policy Response to Capital Inflows in Form of Foreign Aid in Malawi," Working Papers 201232, University of Pretoria, Department of Economics.
    8. Pedrosa-Garcia, Jose Antonio, 2017. "Trends and Features of Research on Foreign Aid: A Literature Review," MPRA Paper 82134, University Library of Munich, Germany.
    9. Thomas Goda & Alejandro Torres García, 2015. "Flujos de capital, recursos naturales y enfermedad holandesa: el caso colombiano," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 33(78), pages 197-206, December.
    10. Roos, E.L. & Adams, P.D. & van Heerden, J.H., 2013. "The economic impacts of a newly discovered oil in Uganda, using a recursive dynamic CGE model," Conference papers 332345, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    11. Gnangnon, Sèna Kimm, 2020. "Development Aid, Remittances Inflows and Wages in the Manufacturing Sector of Recipient-Countries," EconStor Preprints 213439, ZBW - Leibniz Information Centre for Economics.
    12. Djedje Hermann Yohou & Michaël Goujon & Bertrand Laporte & Samuel Guérineau, 2016. "Is Aid Unfriendly to Tax? African Evidence of Heterogeneous Direct and Indirect Effects," Working Papers halshs-01321620, HAL.
    13. Edouard Mien, 2020. "External and Internal Real Exchange Rates and the Dutch Disease in Africa: Evidence from a Panel of Nine Oil-Exporting Countries," CERDI Working papers hal-03013571, HAL.
    14. Hiroaki Sakurai, 2022. "Foreign Aid and Dutch Disease: The Case of Vietnam," Bulletin of Applied Economics, Risk Market Journals, vol. 9(2), pages 159-168.
    15. Naoko C. Kojo, 2015. "Demystifying Dutch Disease," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 6(02), pages 1-23.
    16. Hiroaki Sakurai, 2017. "Foreign Aid and Dutch Disease in Thailand," Bulletin of Applied Economics, Risk Market Journals, vol. 4(2), pages 57-64.
    17. Sergio Peláez, 2018. "Ciclo de recursos naturales y política fiscal bajo preferencias inconsistentes," Coyuntura Económica, Fedesarrollo, vol. 48(1-2), pages 13-78, December.
    18. Léopold BIARDEAU & Anne BORING, 2017. "L’impact de l’aide au développement sur les flux commerciaux entre pays donateurs et pays récipiendaires," Working Paper 464d860e-562e-4ae7-98f5-1, Agence française de développement.
    19. Abdulaziz Hamad Algaeed, 2017. "Oil Price Fluctuations and the Future of Saudi Arabian Non-Oil Traded Sector: An Empirical Investigation," Journal of Economics and Behavioral Studies, AMH International, vol. 9(4), pages 217-229.
    20. Sthabandith Insisienmay & Vanthana Nolintha & Innwon Park, 2015. "Dutch disease in the Lao economy: Diagnosis and treatment," International Area Studies Review, Center for International Area Studies, Hankuk University of Foreign Studies, vol. 18(4), pages 403-423, December.
    21. Thomas Goda & Alejandro Torres, 2013. "Overvaluation of the real exchange rate and the Dutch Disease: the Colombian case," Documentos de Trabajo de Valor Público 10930, Universidad EAFIT.
    22. Ashoff, Guido, 2015. "Die Global Governance-Qualität der internationalen Aid Effectiveness Agenda: eine theoretische Analyse und Bewertung der Systemreform der internationalen Entwicklungszusammenarbeit," IDOS Studies, German Institute of Development and Sustainability (IDOS), volume 87, number 87, July.
    23. Ahmad, Ahmad Hassan & Pentecost, Eric J. & Stack, Marie M., 2023. "Foreign aid, debt interest repayments and Dutch disease effects in a real exchange rate model for African countries," Economic Modelling, Elsevier, vol. 126(C).

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    More about this item

    Keywords

    Aid; Dutch Disease; Africa;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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