How is foreign aid spent?
Subtitle: evidence from a natural experiment
By: Eric D. Werker, Faisal Z. Ahmed, Charles Cohen
Contributors: Ahmed, Faisal; Cohen, Charles; Harvard Business School
Edition: 2nd rev.
Series: Working paper /Harvard Business School -- 07-074; Working paper (Harvard Business School) -- 07-074
Publisher: Harvard Business School
Published: 2008
Place of publication: Boston
Language: eng
Number of pages: 26
Description: We use oil price fluctuations to construct a new instrument to test the impact of transfers from wealthy OPEC nations to their poorer Muslim allies. The instrument identifies plausibly exogenous variation in foreign aid. We investigate how aid is spent by tracking its short-run effect on aggregate demand, the national accounts, and the balance of payments. Aid has no measurable impact on prices or economic growth, though it does affect most components of the national income accounts. We find that much aid is consumed, primarily in the form of imported non-capital goods. Aid substitutes for domestic savings, has no effect on the financial account, and leads to unaccounted capital flight.
Notes: Revision of: How is foreign aid spent?: evidence from a compelling natural experiment. c2007.

"Revised July 2008"--Publisher's web site.

Includes bibliographical references.