Is Aid Volatility Harmful?
نویسندگان
چکیده
This paper studies the causal e¤ect of aid volatility on the economic performance of developing countries in 2000-2009 period. We construct a time-varying measure of aid volatility using autoregressive conditional heteroskedasticity (ARCH). We control for the endogeneity of aid ows by using as instruments for aid volatility three characteristics of donor counitres: (i) their budget de cits ; (ii) their electoral systems (majoritarian versus proportional), and (iii) their electoral cycles. Doubling aid volatility causes a fall in GDP growth of a typical bene ciary country by two-thirds. This e¤ect mainly operates through the increase in violent conict and displacement of the production in the economy towards less advanced sectors. Keywords: foreign aid, aid e¤ectiveness, time-varying volatility, political business cycles, political institutions. JEL Classi cation: F35, O11. Preliminary draft. Please do not cite or circulate without the authors permission. We thank Jean-Marie Baland, Biagio Speciale, Jean-Philippe Platteau, Thierry Verdier, Romain Houssa, Maelys de la Rupelle, and the participants of the seminar at the University of Namur for useful suggestions. Corresponding author. Mailing address: Department of Economics, 8 Rempart de la Vierge, 5000 Namur, Belgium. Email: [email protected]. Mailing address: Department of Economics, 8 Rempart de la Vierge, 5000 Namur, Belgium. Email: [email protected].
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