Abstract
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 language | English (US) |
|---|---|
| Title of host publication | IMF Staff Papers |
| Pages | 453-475 |
| Number of pages | 23 |
| Edition | 3 |
| State | Published - Dec 2006 |
| Externally published | Yes |
Publication series
| Name | IMF Staff Papers |
|---|---|
| Number | 3 |
| Volume | 53 |
| ISSN (Print) | 1020-7635 |
| ISSN (Electronic) | 1564-5150 |
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics