Aid, Growth, And Real Exchange Rate Dynamics

Devarajan, Go, Page, Robinson, and Thierfelder argued that if aid is about the future and recipients are able to plan consumption and investment decisions optimally over time, then the potential problem of an aid-induced appreciation of the real exchange rate (Dutch disease) does not occur. In their...

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Bibliographic Details
Main Author: Devarajan, Shantayanan
Other Authors: Go, Delfin S., Page, John, Thierfelder, Karen
Format: eBook
Language:English
Published: Washington, D.C The World Bank 2008
Subjects:
Online Access:
Collection: World Bank E-Library Archive - Collection details see MPG.ReNa
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653 |a Macroeconomics and Economic Growth 
653 |a Currencies and Exchange Rates 
653 |a Productivity 
653 |a Marginal Productivity 
653 |a Extreme Poverty 
653 |a Debt 
653 |a Emerging Markets 
653 |a Open Economy 
653 |a Debt Markets 
653 |a Private Sector Development 
653 |a Savings 
653 |a Equilibrium 
653 |a Finance and Financial Sector Development 
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653 |a Economic Theory and Research 
653 |a Macroeconomic Management 
653 |a Incentive Effects 
700 1 |a Go, Delfin S. 
700 1 |a Page, John 
700 1 |a Thierfelder, Karen 
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520 |a Devarajan, Go, Page, Robinson, and Thierfelder argued that if aid is about the future and recipients are able to plan consumption and investment decisions optimally over time, then the potential problem of an aid-induced appreciation of the real exchange rate (Dutch disease) does not occur. In their paper, "Aid, Growth and Real Exchange Rate Dynamics," this key result is derived without requiring extreme assumptions or additional productivity story. The economic framework is a standard neoclassical growth model, based on the familiar Salter-Swan characterization of an open economy, with full dynamic savings and investment decisions. It does require that the model is fully dynamic in both savings and investment decisions. An important assumption is that aid should be predictable for intertemporal smoothing to take place. If aid volatility forces recipients to be constrained and myopic, Dutch disease problems become an issue