Foreign Aid and Real Exchange Rate Adjustments in a Financially Constrained Dependent Economy / Stephen Turnovsky, Serpil Tekin, Valerie Cerra.

Format:

Book

Government document

Author/Creator:

Turnovsky, Stephen.

Contributor:

Cerra, Valerie.

Tekin, Serpil.

Series:

IMF Working Papers; Working Paper ; No. 2008/204

IMF working paper ; WP/08/204

IMF Working Papers

Language:

English

Subjects (All):

Economic assistance--Econometric models.

Economic assistance.

Foreign exchange rates--Econometric models.

Foreign exchange rates.

Structural adjustment (Economic policy)--Econometric models.

Structural adjustment (Economic policy).

Physical Description:

1 online resource (47 p.)

Edition:

1st ed.

Place of Publication:

Washington, D.C. : International Monetary Fund, 2008.

Language Note:

English

Summary:

A dynamic dependent-economy model is developed to investigate the role of the real exchange rate in determining the effects of foreign aid. If capital is perfectly mobile between sectors, untied aid has no longrun impact on the real exchange rate. A decline in the traded sector occurs because aid, being denominated in traded output, substitutes for exports in financing imports. While untied aid causes short-run real exchange appreciation, this response is very temporary and negligibly small. Tied aid, by influencing sectoral productivity, does generate permanent relative price effects. The analysis, which employs extensive numerical simulations, emphasizes the tradeoffs between real exchange adjustments, long-run capital accumulation, and economic welfare, associated with alternative forms of foreign aid.

Contents:

Contents; I. Introduction; II. Two Sector Model of Foreign Aid; A. The Economic Structure; B. Macroeconomic Equilibrium; III. Steady State Equilibrium; A. Long-Run Effects of Transfers on the Relative Price; B. Transfers, Economic Activity, and the Dutch Disease; IV. Numerical Analysis; A. Calibration; B. Optimal Government Spending; C. Initial Benchmark Equilibria; V. Foreign Aid Flows: General Characteristics of Real Exchange Rates; VI. Pure Transfer; A. Traded Sector is Capital Intensive: (α > β ); B. Nontraded sector is capital intensive: (β >α )

VII. Productive Government Spending in the Traded Sector A. Traded sector is capital intensive (α > β ); B. Nontraded sector is capital intensive (β >α ); VIII. Productive Government Spending in the Nontraded Sector; IX. Welfare Analysis; X. Effect of Cost of Debt; XI. Conclusions; Tables; 1. The Benchmark Economy; 2. Key Steady-State Equilibrium Ratios; 3. Steady-State Responses to Permanent Changes; 4. Welfare Analysis; Figures; 1. Capital and Debt; 2. Financial Variables; 3. Sectoral Activity and Output; 4. Consumption and Welfare; 5. Sensitivity to Borrowing Premium: Untitled Transfer

6. Sensitivity to Borrowing Premium: Productive Transfer to Traded Sector 7. Sensitivity to Borrowing Premium: Productive Transfer to Nontraded Sector; Appendix; References

Notes:

Description based upon print version of record.

Includes bibliographical references.

Description based on online resource; title from PDF title page (ebrary, viewed February 26, 2014).

ISBN:

9786612841552

9781462392117

1462392113

9781452768250

1452768250

9781451870626

1451870620

9781282841550

1282841556

OCLC:

761966586