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Aid and Dutch Disease in the South Pacific

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  • David Fielding

Abstract

The impact of aid inflows on relative prices and output is ambiguous. Aid inflows that increase domestic expenditure are likely to cause real exchange rate appreciation, ceteris paribus. However, if this expenditure raises the capital stock in the traded goods sector, then output in this sector might not contract, at least in the steady state. Moreover, if investment in the nontraded goods sector is relatively high and/or productive, then there is not necessarily any real exchange rate appreciation in the steady state.

Suggested Citation

  • David Fielding, 2007. "Aid and Dutch Disease in the South Pacific," WIDER Working Paper Series RP2007-50, World Institute for Development Economic Research (UNU-WIDER).
    • Handle: RePEc:unu:wpaper:rp2007-50
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    File URL: https://www.wider.unu.edu/sites/default/files/rp2007-50.pdf
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    References listed on IDEAS

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    Cited by:

    1. T.K. Jayaraman & Chee-Keong Choong & Pravinesh Chand, 2016. "Do Foreign Aid And Remittance Inflows Hurt Competitiveness Of Exports Of Pacific Island Countries? An Empirical Study Of Fiji," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 41(2), pages 111-125, June.
    2. 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.
    3. Wako, Hassen, 2016. "Aid, institutions and economic growth: Heterogeneous parameters and heterogeneous donors," MERIT Working Papers 2016-009, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    4. Ben Naceur, Sami & Bakardzhieva, Damyana & Kamar, Bassem, 2012. "Disaggregated Capital Flows and Developing Countries’ Competitiveness," World Development, Elsevier, vol. 40(2), pages 223-237.
    5. repec:unu:wpaper:wp2012-26 is not listed on IDEAS
    6. Feeny, Simon & de Silva, Ashton, 2012. "Measuring absorptive capacity constraints to foreign aid," Economic Modelling, Elsevier, vol. 29(3), pages 725-733.
    7. Wako, Hassen, 2011. "Effectiveness of foreign aid in sub-Saharan Africa: Does disaggregating aid into bilateral and multilateral components make a difference?," MPRA Paper 72617, University Library of Munich, Germany.

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    More about this item

    Keywords

    Economic assistance and foreign aid; Public expenditures; Foreign exchange; Investments;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O56 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Oceania

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