Foreign Aid, Public Investment and Capital Market Liberalization

This paper studies the impact of liberalization of capital market on the performance of foreign aid (FA). I consider two cases where FA is transferred to the households and where it is used to finance public investment. Two sources of endogenous productivity growth is considered: (i) public investment (ii) Learning-by-doing generated by tradable sector. Saving is endogenous. I compare two recipient economies with closed and open capital market. I show that transferred-aid reduces productivity and growth through de-industrialization if the capital market is liberalized. In the case of closed ca... Mehr ...