the Institute of Development Studies and partner organisations
Browse

File(s) not publicly available

Essays on the macroeconomic management of foreign aid flow in Africa

thesis
posted on 2024-09-05, 23:26 authored by Pedro Miguel Gaspar Martins
The main motivation of this thesis is to contribute to the literature on the macroeconomic effects of foreign aid flows. It consists of four empirical papers, investigating the two main channels through which aid flows impact the recipient economy: (i) the fiscal sector, and (ii) the real exchange rate. The first paper is concerned with the impact of aid on government expenditure, domestic revenues and borrowing. It uses a traditional fiscal response framework with annual data for Ethiopia. The second paper also focuses on the fiscal sector but uses a recently compiled quarterly fiscal dataset and the cointegrated vector autoregression methodology. The main result arising from both papers is the strong correlation between aid inflows and domestic borrowing, possibly as a strategy to smooth unpredictable and volatile aid inflows. Aid is positively correlated with government expenditures, but there is little evidence of tax displacement. There is also evidence of aid heterogeneity, as grants and loans induce different effects. The third paper assesses the impact of foreign aid on the Ethiopian real exchange rate, which is a common measure of external competitiveness. It uses a quarterly macroeconomic dataset and applies two distinct methodologies: (i) single-equation cointegration models, and (ii) an unobserved components model. The results do not provide support for the ‘Dutch disease’ hypothesis. The fourth paper investigates the extent to which foreign aid is ‘absorbed’ and ‘spent’. The empirical analysis uses a panel of 25 African low-income countries and applies recently developed panel cointegration techniques. The findings suggest that aid is fully spent while absorption is higher than previously estimated.

History

Publisher

University of Sussex

Citation

Martins, Pedro Miguel Gaspar (2010) Essays on the macroeconomic management of foreign aid flows in Africa. Doctoral thesis, Institute of Development Studies, University of Sussex.

IDS Item Types

Thesis

Copyright holder

The author

Country

Ethiopia

Language

en

Usage metrics

    IDS PhD Research

    Categories

    No categories selected

    Keywords

    Licence

    Exports

    RefWorks
    BibTeX
    Ref. manager
    Endnote
    DataCite
    NLM
    DC