Aid, Disbursement Delays, and the Real Exchange Rate

Aid donors and recipients have long been concerned that aid inflows may lead to an appreciation of the real exchange rate and an associated loss of competitiveness. This paper provides new evidence of the dynamic effects of aid on the real exchange rate, using an identification strategy that exploits the long delays between the approval of aid projects and the subsequent disbursements on them. These disbursement delays enable the isolation of a source of variation in aid inflows that is uncorrelated with contemporaneous macroeconomic shocks that may drive both aid and the real exchange rate. Using this predetermined component of aid as an instrument, there is little evidence that aid inflows lead to significant real exchange rate appreciations.

Bibliographic Details

Main Authors:	Jarotschkin, Alexandra, Kraay, Aart
Language:	English en_US
Published:	World Bank, Washington, DC 2013-05
Subjects:	AUTOREGRESSION, BANK LENDING, BENCHMARK, BID, BLACK MARKET, CAPITAL INFLOWS, CD, CENTRAL BANKS, CHECKS, COMPETITIVENESS, COUNTRY FIXED EFFECTS, COUNTRY SAMPLE, CREDITOR, CREDITORS, DEBTOR, DEBTOR REPORTING SYSTEM, DEFLATORS, DEVELOPING COUNTRIES, DEVELOPING COUNTRY, DEVELOPMENT ASSISTANCE, DEVELOPMENT BANK, DEVELOPMENT ECONOMICS, DEVELOPMENT POLICY, DISBURSEMENT, DISBURSEMENTS, DISEQUILIBRIUM, DOMESTIC FINANCIAL MARKETS, DOMESTIC PRICE, DOMESTIC PRICE LEVEL, ECONOMIC PERFORMANCE, ECONOMIC REVIEW, ELASTICITY, ELASTICITY OF SUPPLY, EMPIRICAL EVIDENCE, EXCHANGE RATE ARRANGEMENTS, EXCHANGE RATE REGIME, EXCHANGE RATE REGIMES, EXPORT SECTOR, EXTERNALITY, FINANCIAL MARKETS, FINANCIAL SUPPORT, FIXED EXCHANGE RATE, FLEXIBLE EXCHANGE RATE, FLEXIBLE EXCHANGE RATE REGIME, FLEXIBLE EXCHANGE RATE REGIMES, FOREIGN EXCHANGE, GDP, GOVERNMENT SPENDING, HIGH INFLATION, INCOME, INCOME COUNTRIES, INDIVIDUAL LOANS, INDUSTRIALIZATION, INSTRUMENT, INTERNATIONAL BANK, INTERNATIONAL DEVELOPMENT, INTERNATIONAL ECONOMICS, INTERNATIONAL MONETARY FUND, LOAN, LOAN APPROVAL, LOAN APPROVALS, LONG TERM, M1, M2, MACROECONOMIC CRISIS, MACROECONOMIC MANAGEMENT, MACROECONOMIC POLICIES, MACROECONOMIC POLICY, MACROECONOMIC SHOCKS, MACROECONOMICS, MONETARY FUND, MONETARY POLICY, MULTILATERAL TRADE, MULTIPLIERS, NOMINAL EXCHANGE RATE, OPEN ECONOMY, OVERVALUATION, POLICY RESEARCH, POLICY RESPONSE, POVERTY REDUCTION, PRICE LEVELS, PUBLIC SPENDING, REAL APPRECIATION, REAL EXCHANGE, REAL EXCHANGE RATE, REAL EXCHANGE RATES, RELATIVE PRICE, REPAYMENTS, RESERVE, RESERVES, SIDE EFFECTS, SMALL COUNTRIES, TECHNICAL ASSISTANCE, TRANSFER PARADOX, UNDERVALUATION, WORLD ECONOMY, Dutch disease, aid,
Online Access:	http://documents.worldbank.org/curated/en/2013/06/17919049/aid-disbursement-delays-real-exchange-rate https://hdl.handle.net/10986/15860
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