Post-Conflict Aid, Real Exchange Rate Adjustment, and Catch-up Growth

Post-conflict countries receive substantial aid flows after the start of peace. While post-conflict countries' capacity to absorb aid (that is, the quality of their policies and institutions) is built up only gradually after the onset of peace, the evidence suggests that aid tends to peak immediately after peace is attained and decline thereafter. Aid composition broadly reflects post-conflict priorities, with large parts of aid financing social expenditure and infrastructure investment. Aid has significant short-term effects on the real exchange rate (RER), as inferred from the behavior of RER in the world. While moderate RER overvaluation is observed in post-conflicts, it cannot be traced down to the aid flows. The empirical evidence on world growth reveals new findings about the pattern of catch-up growth during post-conflicts and the role of key growth determinants on post-conflict growth. Aid is an important determinant of growth, both generally and more strongly during post-conflict periods. Because RER misalignment reduces growth, RER overvaluation during post-conflicts reduces catch-up growth. Aid and RER overvaluation combined also lower growth. But the negative growth effect of RER overvaluation declines with financial development.

Bibliographic Details

Main Authors:	Elbadawi, Ibrahim A., Kaltani, Linda, Schmidt-Hebbel, Klaus
Language:	English
Published:	World Bank, Washington, DC 2007-04
Subjects:	AGGREGATE OUTPUT, AID FINANCING, AID FLOWS, BENCHMARK, BUDGET CONSTRAINTS, CAPITAL FLOWS, CAPITAL INFLOWS, CENTRAL BANK, CIVIL PEACE, CIVIL WAR, CIVIL WARS, COEFFICIENT ESTIMATE, COMPARATIVE ADVANTAGE, COMPETITIVENESS, CONDITIONALITY, CONFLICT COUNTRY, CONFLICTS, CRIME, CRISES, CURRENCY ASSETS, DATA AVAILABILITY, DEBT, DEVELOPING COUNTRIES, DEVELOPMENT AID, DEVELOPMENT ASSISTANCE, DEVELOPMENT GOALS, DEVELOPMENT PROCESS, DEVELOPMENT STRATEGIES, DIMINISHING RETURNS, DISEQUILIBRIUM, DONOR CONDITIONALITY, ECONOMIC ACTIVITIES, ECONOMIC GROWTH, ECONOMIC PERFORMANCE, ECONOMIC REFORMS, ECONOMIC RESEARCH, ELASTICITY, EMPIRICAL EVIDENCE, EMPIRICAL GROWTH LITERATURE, EMPIRICAL GROWTH MODEL, EMPIRICAL LITERATURE, EMPIRICAL MODEL, ESTIMATED ELASTICITY, ESTIMATION RESULTS, ESTIMATION TECHNIQUES, EXCHANGE RATE MISALIGNMENT, EXCOMBATANTS, EXPLOITATION, EXPORT DIVERSIFICATION, EXPORT GROWTH, EXPORTS, EXTERNALITIES, FINANCIAL DEVELOPMENT, FOREIGN AID, FOREIGN EXCHANGE, GDP, GROWTH DETERMINANTS, GROWTH EFFECT, GROWTH IMPACT, GROWTH MODEL, GROWTH PROSPECTS, GROWTH SPECIFICATION, HIGH RISK, HUMANITARIAN AID, IMPORTS, INCOME PER CAPITA, INCREASE GROWTH, INDIVIDUAL COUNTRIES, INFLATION, INFRASTRUCTURE INVESTMENT, INTERNATIONAL DEVELOPMENT, JOB OPPORTUNITIES, LABOR MARKET, LONG RUN, LONG-RUN GROWTH, MACROECONOMIC MANAGEMENT, MACROECONOMIC OUTCOMES, MACROECONOMICS, MILLION PEOPLE, NATURAL RESOURCES, NON-TRADITIONAL EXPORTS, 0 HYPOTHESIS, OPEN ECONOMY, OVERVALUATION, PANEL REGRESSIONS, PEACE PERIOD, PEACE PROCESS, POLICY IMPLICATIONS, POLICY ISSUES, POLICY RESEARCH, POST-CONFLICT, POST-CONFLICT COUNTRIES, POST-CONFLICT COUNTRY, POST-CONFLICT ECONOMIES, POST-CONFLICT ECONOMY, POST-CONFLICT EXPERIENCE, POST-CONFLICT GOVERNMENTS, POST-CONFLICT PEACE, POST-CONFLICT PERIOD, POVERTY REDUCTION, PRIORITIES, PRO-POOR, REAL EXCHANGE RATE, RECONSTRUCTION, RESOURCE ALLOCATION, SIGNIFICANT CORRELATION, SIGNIFICANT EFFECT, SOCIAL SPENDING, STANDARD GROWTH DETERMINANTS, SUSTAINABILITY, TRADE DEFICIT, TRADE OPENNESS, TRADE REGIME, TRADED SECTOR, UNDERVALUATION, UNDERVALUED EXCHANGE RATE, UNEMPLOYMENT, UNEMPLOYMENT RATE, WAGES,
Online Access:	http://documents.worldbank.org/curated/en/2007/04/7524376/post-conflict-aid-real-exchange-rate-adjustment-catch-up-growth https://hdl.handle.net/10986/7035
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