ronald guillaumont
Using this indicator, we argue that a pro‐cyclical aid can still be stabilizing, and that there may be cases where aid is contra‐cyclical and destabilizing, depending on the relative volatility of aid with respect to exports. External Financing in India: Sources and Types of Foreign Direct Investment.
While a rising concern was perceptible about the problems raised by volatility, several recent papers, followed by more official documents and political declarations, have underlined the problem induced by aid volatility (Lensink and Morrissey, 2000; Bulíř and Hamann, 2001, 2003, 2005; Pallage and Robe, 2001; Rand and Tarp, 2002; Eifert and Gelb, 2005; Fielding and Mavrotas, 2005; IMF and World Bank, 2005): if aid is volatile, it may contribute to macroeconomic instability and then be itself a factor of vulnerability. Referring to the evolution of exports of goods and services, we argue that aid is not as pro‐cyclical as it is often asserted. All regressions support the view that export volatility is a highly significant factor of the volatility of income. Annals of Public and Cooperative Economics. Watch Queue Queue. Gendarmerie Nationale.
We will explain that the higher aid effectiveness in vulnerable countries is due to a large extent to its stabilizing effect: exogenous trade shocks have a negative impact on growth and aid mitigates this impact. Identifying thresholds in aid effectiveness. The debate initiated by the influential paper of Burnside and Dollar (1997, 2000) has at least made clear that aid effectiveness is likely to depend on specific features of the recipient country. Unpredictability of aid is supposed to be harmful, but it is difficult to assess. and you may need to create a new Wiley Online Library account. or. We will examine through panel data the impact of aid on the volatility of income: controlling for the traditional variables of income volatility (including exports instability) we find that the level of aid has a stabilizing impact, while its volatility has a destabilizing impact. They measure aid volatility by several methods and assess pro‐cyclicality of aid with respect to exports, thus departing from previous literature, which usually assess pro‐cyclicality of aid with respect to national income or fiscal receipts. Ronald Guillaumont. Many low income developing countries hugely suffer from export price shocks which can directly be assessed through the instability of exports. As in the previous section, we use both GMM and System‐GMM estimators. Growth, Poverty and Development Assistance: When Does Foreign Aid Work?. For the purpose of our present analysis we use an even narrower concept of vulnerability; that is we focus on that part of vulnerability due to external trade shocks, as captured by exports instability. Number of times cited according to CrossRef: Foreign capital towards SDGs 1 & 2– Ending Poverty and hunger: The role of agricultural production. General Budget Support and Tax Revenue Instability in Developing Countries. The choice of the value of λ depends on the frequency of observations. However, in the context of the aid effectiveness debate, we have argued in two previous papers (Guillaumont and Chauvet, 2001; Chauvet and Guillaumont, 2004) that aid is likely to cushion the negative effects of external shocks on economic growth (i.e. On Adjusting the Hodrick‐Prescott Filter for the Frequency of Observations, The Anarchy of Numbers: Aid, Development, and Cross‐country Empirics, A Finite Sample Correction for the Variance of Linear Two‐step GMM Estimators. And when it is contra‐cyclical, it is stabilizing only as far as its volatility does not exceed a certain threshold.
In previous papers the authors have argued that aid is likely to mitigate the negative effects of external shocks on economic growth (i.e. How to Take into Account Vulnerability in Aid Allocation Criteria and Lack of Human Capital as Well: Improving the Performance Based Allocation. Does foreign aid volatility increase international migration?.
This concern has been reinforced by the prospect of an acceleration of disbursements in order to achieve the Millennium Development Goals. Aid Volatility and Real Business Cycles in a Developing Open Economy. We control for initial income, lagged income volatility, export to GDP ratio, and the volatility of exports which are likely to be major factors of income volatility in developing countries.
Second, national income and fiscal revenues are more likely to be influenced by aid disbursements than exports. We measure the stabilizing character of aid using the difference between the volatility of exports and the volatility of exports plus aid.
Darlings and Orphans: Interactions across Donors in International Aid. In this section, we propose a synthetic way to assess whether aid has been stabilizing or destabilizing: we examine to what extent income volatility has been influenced by the average level of aid inflow and the level of its volatility. The previous studies of the factors of aid volatility give information on what should be the appropriate control variables in any estimation of the effect of aid on income volatility, under the condition that they are not themselves affected by aid. Over the 102 cases of contra‐cyclical aid, 20 still appear to be associated with a negative stabilizing indicator, due to high aid volatility and aid levels. The 2004 paper used a narrower concept, limited to exports instability and (negative) terms of trade trend.5. Several alternative methodologies are available to analyze the cyclical characteristics and the volatility of aid and exports.
View the profiles of people named Ron Guillard. The volatilities of aid and exports are measured by the respective standard errors of their cycles. The full text of this article hosted at iucr.org is unavailable due to technical difficulties. Why Bureaucratic Stability Matters for the Implementation of Democratic Governance Programs. Pro cyclicité de la politique budgétaire et surveillance multilatérale dans l’Union Economique et Monétaire Ouest Africaine*. Due to the uncertainty about the deterministic or stochastic nature of this trend, it is convenient to estimate an equation of the following form: The predicted value, , is the trend component, while the residual, εt, is the cycle component. Pro‐cyclicality is easier to measure. We also use the application of the GMM method proposed by Arellano and Bond (1991) in which first‐differenced equations are instrumented by lagged level variables. They show that when the stabilizing character of aid is introduced into the baseline model it is significantly positive, while aid interacted with exports volatility loses its significance in one out of three regressions. Aid and export volatilities are, respectively, weighted by the aid to GDP ratio and the export to GDP ratio: In Table 2 are presented the results of the estimations of the income volatility equation. We estimate an equation where income volatility is a function of aid to GDP ratio and aid volatility. Join Facebook to connect with Ron Guillard and others you may know. Aid volatility prosecution may thus be misplaced if aid has a compensatory profile: in that case aid volatility, rather than being a problem, would be a solution. Some are focused on policy factors (Easterly et al., 2001), some try to split up structural and policy factors (Combes et al., 2000), others split up internal and external factors (Raddatz, 2005). It may be particularly relevant for African countries, which are highly vulnerable and where the prospects of aid increase mainly apply. Foreign Aid, Instability and Governance in Africa. Find your friends on Facebook. This method was used by Lensink and Morrissey (2000) to measure aid volatility. The debate on their thesis has been mainly related to the robustness of their econometric results (Hansen and Tarp, 2001) and to the exploration of alternative conditions for aid effectiveness.4 In two previous papers (Guillaumont and Chauvet, 2001; Chauvet and Guillaumont, 2004), we have argued that a major factor conditioning aid effectiveness in recipient countries is the economic vulnerability they face.
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