How is foreign aid spent?
Subtitle: evidence from a compelling natural experiment
By: Eric D. Werker, Faisal Z. Ahmed, Charles Cohen
Contributors: Ahmed, Faisal; Cohen, Charles; Harvard Business School. Division of Research
Edition: Rev.
Series: Working paper /Harvard Business School -- 07-074; Working paper (Harvard Business School) -- 07-074
Publisher: Harvard Business School
Published: 2007
Place of publication: Boston]
Language: eng
Number of pages: 46
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. We find that much aid is consumed, primarily in the form of imported non-capital goods. Some aid is invested and aid has a positive, though statistically imprecise, effect on growth. Aid has no effect on the financial account but leads to unaccounted capital flight.
Notes: Revision of: How is foreign aid spent? : evidence from a compelling natural experiment. c2007.

"Revised December 2007"--Publisher's web site.

Includes bibliographical references.