The potential of foreign aid as insurance

Stéphane Pallage, Michel A. Robe, Catherine Bérubé

Research output: Chapter in Book/Report/Conference proceedingChapter


This paper quantifies the potential of foreign aid as an insurance mechanism against macroeconomic shocks. Within a dynamic model of aid flows between two endowment economies, we show that at least three-fourths of the large welfare costs of macroeconomic fluctuations in poor countries could be alleviated by a simple reallocation of aid flows across time. In developing countries subject to persistent macroeconomic shocks, the resulting welfare improvement is of first-order magnitude.

Original languageEnglish (US)
Title of host publicationIMF Staff Papers
Number of pages23
StatePublished - Dec 2006
Externally publishedYes

Publication series

NameIMF Staff Papers
ISSN (Print)1020-7635
ISSN (Electronic)1564-5150

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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