Can Foreign Aid Accelerate Stabilization? / Alessandra Casella, Barry Eichengreen.

Format:

Book

Author/Creator:

Casella, Alessandra.

Contributor:

National Bureau of Economic Research.

Eichengreen, Barry.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4694.

NBER working paper series no. w4694

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1994.

Summary:

This paper studies the effect of foreign aid on economic stabilization. Following Alesina and Drazen (1991), we model the delay in stabilizing as the result of a distributional struggle: reforms are postponed because they are costly and each distributional faction hopes to reduce its share of the cost by outlasting its opponents in obstructing the required policies. Since the delay is used to signal each faction's strength, the effect of the transfer depends on the role it plays in the release of information. We show that this role depends on the timing of the transfer: foreign aid decided and transferred sufficiently early into the game leads to earlier stabilization; but aid decided or transferred too late is destabilizing and encourages further postponement of reforms.

Notes:

Print version record

April 1994.