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Aid, volatility, and growth again : when aid volatility matters and when it does not

Chauvet, Lisa; Guillaumont, Patrick (2009), Aid, volatility, and growth again : when aid volatility matters and when it does not, Review of development economics, 13, 3, p. 452-463. http://dx.doi.org/10.1111/j.1467-9361.2009.00501.x

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Type
Article accepté pour publication ou publié
Date
2009
Journal name
Review of development economics
Volume
13
Number
3
Publisher
Wiley
Pages
452-463
Publication identifier
http://dx.doi.org/10.1111/j.1467-9361.2009.00501.x
Metadata
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Author(s)
Chauvet, Lisa
Guillaumont, Patrick
Abstract (EN)
In previous papers the authors have argued that aid is likely to mitigate the negative effects of external shocks on economic growth (i.e. that aid is more effective in countries which are more vulnerable to external shocks). Recently an important debate has emerged about the possible negative effects of aid volatility itself. However, the cushioning effect of aid may involve some volatility in aid flows, which then is not necessarily negative for growth. In this paper the authors examine to what extent the time profile of aid disbursements may contribute to an increase or a decrease of aid effectiveness. They first show that aid, even if volatile, is not clearly as pro-cyclical as is often argued, and, even if pro-cyclical, is not necessarily destabilizing. They measure aid volatility by several methods and assess pro-cyclicality of aid with respect to exports, thus departing from previous literature, which usually assess pro-cyclicality of aid with respect to national income or fiscal receipts. The stabilizing/destabilizing nature of aid is measured by the difference in the volatility of exports and the volatility of the aid plus export flows. Then, in order to take into account the diversity of shocks to which aid can respond, they consider the effect of aid on income volatility and again find that aid is making growth more stable, while its volatility reduces this effect. They finally show through growth regressions that the higher effectiveness of aid in vulnerable countries is to a large extent due to its stabilizing effect.
Subjects / Keywords
growth; aid volatility
JEL
O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
O19 - International Linkages to Development; Role of International Organizations
F35 - Foreign Aid
F14 - Empirical Studies of Trade
E32 - Business Fluctuations; Cycles
E23 - Production

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