Aid and exchange rates in sub-Saharan Africa: Nomore dutch disease?
Given the significant inflows of foreign aid to sub-Saharan Africa (SSA) the possibility of Dutch Disease has been a concern. Most macroeconomic models predict that aid inflows, especially if large and/or unanticipated (shocks), will lead to an appreciation of the real exchange rate and undermine the competitiveness of the economy. Empirical evidence is inconclusive, but a common presumption is that aid has been associated with Dutch Disease effects in SSA. Previous empirical studies rely on annual data and few include data since themid-2000s. This paper focuses on themore recent period employ... Mehr ...
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Dokumenttyp: | doc-type:workingPaper |
Erscheinungsdatum: | 2019 |
Verlag/Hrsg.: |
Nottingham: The University of Nottingham
Centre for Research in Economic Development and International Trade (CREDIT) |
Schlagwörter: | ddc:330 / F31 / F35 / O11 / O55 / Foreign Aid / Exchange Rates / Dutch Disease / sub-Saharan Africa |
Sprache: | Englisch |
Permalink: | https://search.fid-benelux.de/Record/base-29049118 |
Datenquelle: | BASE; Originalkatalog |
Powered By: | BASE |
Link(s) : | http://hdl.handle.net/10419/210858 |
Given the significant inflows of foreign aid to sub-Saharan Africa (SSA) the possibility of Dutch Disease has been a concern. Most macroeconomic models predict that aid inflows, especially if large and/or unanticipated (shocks), will lead to an appreciation of the real exchange rate and undermine the competitiveness of the economy. Empirical evidence is inconclusive, but a common presumption is that aid has been associated with Dutch Disease effects in SSA. Previous empirical studies rely on annual data and few include data since themid-2000s. This paper focuses on themore recent period employing monthly time series data for ten countries over 2001 to 2017 to estimate a structural VAR. For the majority of countries aid has no or a minimal effect on the real exchange rate; there is evidence of a significant real appreciation in only two countries. Additional analysis shows that commodity export prices are a more important determinant of the real exchange rate, with an effect on average twice that of aid. The paper conjectures that the absence of a Dutch Disease effect since the 2000s is due to a declining level of aid inflows and improved macroeconomic management.