The Ranting Economist · 2012. 8. 8. · The Ranting Economist 3 2. The government response – The government has to decide whether to spend the money (and widen the fiscal deficit)

The Ranting Economist

Aid-induced Dutch disease: the causes, effects and what can

be done about it

1. Introduction

In the 1960’s the Dutch discovered large reserves of natural gas off the coast of the

North Sea. These vast reserves promised to bring newfound prosperity to the people of

the Netherlands but instead caused long-term damage to their domestic industrial

structure. However the Netherlands is not alone. Countries that discover, and export, a

variety of natural resources – whether it be gas in the Netherlands, oil in Nigeria or iron

ore in Australia1 – have experienced the same thing: a substantial influx of foreign

currency which drives up the value of their real exchange rate thus hurting the

competitiveness of their other export industries. This phenomenon is called ‘Dutch

disease’ – when the appreciation of the real exchange rate, caused by an inflow of

foreign currency, hurts the non-booming export sectors of an economy (Gruen, 2011,

p.132). However foreign currency inflows can come in many different forms, unrelated

to natural resources. And one of those forms is foreign aid.

This raises some potentially alarming questions. Could foreign aid actually cause Dutch

disease? Could foreign aid, in and of itself, actually cause harm to the countries we are

seeking to help? In this paper I will show that, both theoretically and empirically,

foreign aid can indeed cause Dutch disease and that it has done so in the past. So does

this mean that foreign aid should be stopped? No. Far from it. I will show that, not only

are there a variety of policy options available to governments in managing the effects of

aid-induced Dutch disease, but that even on an objective scale the costs of Dutch

disease to a country’s economy are likely to be far outweighed by the benefits of foreign

aid.

These conclusions are, of course, not without controversy, and I will explore these

issues in turn. First, however, let us explore the theoretical and empirical evidence of

aid-induced Dutch disease and the policy responses available to address it.


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2. The theoretical evidence of aid-induced Dutch disease

An economy’s real exchange rate is given by the simple formula below where E is the

economy’s nominal exchange rate, Pn is the price of non-tradable goods2 and Pt is the

price of tradable goods.3

e = E (Pn / Pt)

An appreciation of an economy’s real exchange rate can therefore come through three

channels: an appreciation of the nominal exchange rate, an increase in the price of non-

tradable goods (domestic inflation) or a fall in the price of tradable goods. The problem

with an appreciated real exchange rate is that it makes goods produced at home

relatively more expensive compared to the same goods produced overseas. This

weakens a country’s ability to compete in international markets thus causing a

contraction in the country’s export industries.4

To explain how this comes about, suppose that a country receives a large amount of

foreign currency from abroad – whether it be in the form of foreign aid or payment for

exported natural resources. The country has to make two separate decisions (Berg et al,

2006, p.2):

1. The central bank response. The government can’t spend foreign currency – it

needs to be exchanged for domestic currency. The central bank therefore needs

to decide whether to absorb the foreign currency into the domestic economy (by

exchanging the foreign currency for domestic currency)5 or not absorb the

currency and instead accumulate foreign exchange reserves.

1 For a discussion on whether Australia is suffering from Dutch disease by virtue of its resource boom,

see Gruen (2011). 2 Non-tradable goods are goods that cannot be traded overseas such as haircuts and house cleaning

services. A key point to understand is that there is no substitution between tradable and non-tradable goods. If the price of haircuts increases you cannot import your haircut instead. 3 Tradable goods are goods that are traded internationally, including tradable services like financial and

investment services. 4 Relatively higher non-tradable goods prices can also result in a resource transfer effect where the

economies resources shift away from export industries towards non-tradable goods sectors (discussed below). 5 This translates to a widening of the current account deficit.


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2. The government response – The government has to decide whether to spend

the money (and widen the fiscal deficit) or not. Fundamentally, we are assuming

that if the government spends the money then it does so, at least in part, on non-

tradable goods. If the government spends all the money on tradable goods

(imports) then there is no effect on the real exchange rate.6

The effect of the inflow of foreign currency on the real exchange rate (and, indeed,

whether or not it triggers Dutch disease) depends on the interplay between these two

responses. The corresponding scenarios for the real exchange rate are illustrated in the

matrix below.

SCENARIO 1: Absorb and spend. Under this scenario the central bank absorbs the

foreign currency. The central bank sells the currency in foreign exchange markets in

exchange for local currency which it gives to the government. The effect of this is an

increased demand for local currency which causes an appreciation of the nominal

exchange rate. As per the formula above, this results in an appreciation of the real

exchange rate. Simultaneously, however, the government spends its newfound wealth

on goods and services for its people. This increases aggregate demand which pushes up

the price of non-tradable goods causing domestic inflation.7 As per the formula above,

6 This assumes a small open economy that cannot influence international prices. This is a realistic

assumption for the majority of developing countries which are the recipients of foreign aid. 7 An appreciated exchange rate caused by higher relative prices of non-tradable goods can also result in

what Cordon and Neary (1982) call ‘the resource transfer effect’. Because non-tradable goods receive a higher price compared to tradable goods this results in the economies’ resources being transferred


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this also results in an appreciation of the real exchange rate. This scenario therefore

results in an unambiguous appreciation of the real exchange rate.

SCENARIO 2: Neither absorb nor spend. Under this scenario the central bank does

not absorb the foreign currency and the government does not spend the money. The

effect is that the country accumulates foreign exchange reserves and there is no effect on

the real exchange rate.

SCENARIO 3: Spend but do not absorb. This scenario is the equivalent of fiscal

stimulus (Berg et al, 2006, p.3). The government finances a fiscal expansion by

borrowing from the central bank. Because the central bank has not absorbed the money,

it effectively prints domestic currency for the government to spend. The increase in

government spending increases aggregate demand which, again, causes inflation by

increasing the price of non-tradables. However the expansion in the money supply also

causes inflation. The result is therefore a double-whammy of inflation for the local

economy which causes an appreciation of the real exchange rate.

SCENARIO 4: Absorb but do not spend. If the central bank absorbs the foreign

currency without any increase in government spending, then the government has

effectively increased its deposits with the central bank (Berg et al, 2006, p.11). With no

increase in government spending there is no increase in inflation. However the central

banks’ decision to absorb the currency has two effects: (1) the increased demand for the

local currency causes an appreciation of the nominal exchange rate; and (2) the money

supply is effectively contracted since the central bank has withdrawn money from

circulation without any increase in government spending. This causes deflation. The

overall effect on the real exchange rate is therefore ambiguous.

We can now see the theoretical evidence behind aid-induced Dutch disease. The key

problem with foreign aid is that it tends to come in foreign currency.8 In the context of

the real exchange rate, foreign aid is no different than the exporting of natural resources.

Both result in an inflow of foreign currency and both have the potential to cause an

away from the country’s export sectors towards its non-tradable goods sectors. This can cause long-term damage to a country’s international competitiveness which can be difficult to reverse.


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appreciation of the real exchange rate. Whether one of the above four scenarios is

preferable to the others depends on the macroeconomic circumstances of the country in

question. This is discussed in detail in section 4 in regards to the appropriate policy

responses to Dutch disease. First, however, let us consider the empirical evidence of

Dutch disease.

3. The empirical evidence of aid-induced Dutch disease

In this section I will explore the studies which have found evidence of aid-induced

Dutch disease, compare them to the studies that have found no evidence of aid-induced

Dutch disease and then show that much of the contradiction between these studies can

be explained by three key variables.

Empirical studies evidencing Dutch disease

A cross-country study by Rajan and Subramanian (Rajan and Subramanian, 2009)

looked at the effects of foreign aid on manufacturing growth. The study found that aid

inflows have systematically adverse effects on a country’s competitiveness, reflected by

a lower relative growth rate of export industries. Fundamentally, the study found that

the key channel for this reduction in competitiveness was the appreciation of the real

exchange rate which was, in turn, caused by aid inflows (Rajan and Subramanian, 2009,

p.4).9 Specifically, Rajan and Subramanian found that, across aid-recipient countries,

the more aid a country received the smaller was its manufacturing sectors’ share of GDP

(Rajan and Subramanian, 2009, p.1).10

On review of the literature on this topic, Riddell similarly found that ‘...there is

significant country-based and cross-country evidence documenting the occurrence of

Dutch disease in aid-recipient countries’ (Riddell, 2007, p.227). One example is a 2006

study by Berg et al which focused on the experiences of Ethiopia, Ghana, Mozambique,

8 Aid can, of course, come in the form of goods and services which does not involve any currency.

9 Rajan and Subramanian go one step further to suggest that their results help explain the micro-macro

paradox of foreign aid. 10

They found that a one percentage point increase in the aid-to-GDP ratio is associated with a reduced share of manufacturing in total GDP of 0.2 to 0.3 percentage points (Rajan and Subramanian, 2009, p.15).


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Tanzania and Uganda – five countries which all faced a surge in foreign aid around the

same time (2005). The study found that each of these countries faced similar pressures,

all consistent with Dutch disease, although how each them responded differed markedly

(Berg et al, 2006, p.2) (discussed in section 4).

Empirical studies finding no evidence of Dutch disease

For every study that finds evidence of aid-induced Dutch disease there seems to be

another that finds evidence against it. Barder’s 2006 paper with the Centre for Global

Development is one such example. Barder finds that ‘it is unlikely that a long-term,

sustained and predictable increase in aid would, through the impact on the real the

exchange rate, cause more harm than good’(Barder, 2006, p.3). Barder’s analysis finds

that aid to Africa has often been associated with a depreciation of the real exchange

rate, not an appreciation. He finds that, based on cross-country regression analysis, there

is little evidence that increases in aid are in any way correlated with an overvaluation of

the exchange rate (Barder, 2006, p.12). Berg et al similarly finds that, over their sample

of countries in 2006, the real exchange rate remained relatively constant (Berg et al,

2006, p.3).

This raises the following question: in light of clear theoretical evidence of the potential

for aid-induced Dutch disease, can we explain the contradictions between empirical

studies that do find evidence of aid-induced Dutch disease and empirical studies that do

not?

Reasons for the contradiction

Conflicting cross-country empirical evidence is nothing new when it comes to aid

literature. However if we look specifically at the studies that focus on aid-induced

Dutch disease we can identify three key factors that drive these contradictory findings.

1. Countries can, and do, manage Dutch disease

Put simply, one reason that the effects of Dutch disease are often not detected is because

countries actively implement policies that address the effects of Dutch disease. The

study by Berg et al, for example, found ‘no evidence of aid-related Dutch disease in the


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sample of countries’ but then notes that ‘this is due in large part to the policy decision

[among the sample countries] to accumulate reserves rather than fully absorbing the aid’

(Berg et al, 2006, p.3). Perkins et al similarly concluded that in many countries where

Dutch disease has been found it has been quite effectively managed and therefore

difficult to detect (Perkins et al, 2006, pp.681-683).

2. The micro-macro paradox and statistical limitations

Foreign aid is inherently characterised by a micro-macro paradox – that although the

effects of aid are observable on a micro, country-specific scale they are often difficult to

observe on a global macro scale (Mosley, 2009, p.3). The same issue applies to Dutch

disease. Because of the numerous variables that affect a country’s real exchange rate

and its economy generally, the vast amount of statistical noise makes it difficult to

establish a clear relationship between aid flows and real exchange rate appreciations. To

this end, Adam and Bevan point out that the relationship between enhanced aid flows

and real exchange rates is much less straightforward than the simple models used by

many authors suggest (Adam and Bevan, 2004, p.11). Barder similarly highlights the

difficulty in disentangling the effects of aid on exchange rates and points out the

potential for reverse causality to further cloud the statistical waters – that countries with

poor export performance may attract aid, rather than aid causing poor export

performance (Barder, 2006, p.7).

3. Country specific circumstances

Finally, country-specific circumstances play a significant role in how large an effect aid

will have on a country’s real exchange rate (Perkins et al, 2006, p.228). This is apparent

when you compare the experience of Indonesia to that of Nigeria – something I will do

in the next section.

Overall there are a number of studies that show that there is significant country-based

and cross-country evidence documenting the occurrence of Dutch disease in aid

recipient countries. However the Dutch disease phenomenon is by no means universal –

and there are many reasons why some studies, particularly studies based on cross-

country regressions, may fail to pick up on them (Perkins et al, 2006, pp.681-683). In


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the next section I will consider more of these specific country examples in the context

of how countries can, and have, dealt with the effects of aid-induced Dutch disease.

4. What to do if you catch Dutch disease

The contrasting experiences of Indonesia and Nigeria

As with many countries at the time, Indonesia and Nigeria both experience substantial

oil windfalls during the OPEC oil embargo in 1973 and the Iranian revolution in 1979.

During the first windfall in 1973 the Indonesian government spent around 60% of its

newfound wealth and experienced a real exchange rate appreciation of around 30% –

slightly greater than that experienced by Nigeria (Perkins et al, 2006, p.680). Both

Indonesia and Nigeria therefore began from a similar starting point. However the

government response, central bank response and country-specific circumstances

differed significantly.

Legislative controls in the Indonesian Parliament required the government to balance its

budget year-on-year which acted to restrain government spending (Perkins et al, 2006,

p.680). Furthermore the Indonesian government used its revenues to invest heavily in

agriculture such as irrigation systems, roads, fertilizers and rural credit infrastructure. At

the same time the central bank undertook strict management of the money supply in

order to protect Indonesia’s foreign exchange reserves. The central bank also undertook

to devalue its currency so as to limit the appreciation of the real exchange rate (Perkins

et al, 2006, p.680).

Through a shrewd and coordinated policy response the Indonesian government was

highly effective at mitigating Dutch disease. By 1983 agricultural output increased by a

third and Indonesia become self-sufficient in rice production. Furthermore by the end of

the boom the real exchange rate had actually depreciated by 8 per cent while non-oil

exports actually increased by 7 per cent (Perkins et al, 2006, p.680) – the polar opposite

to Dutch disease symptoms. However the economic circumstances of Indonesia also

assisted in this regard. The substantial workforce available in the agricultural sector –

around two-thirds of its total workforce – dampened any tendencies for surges in wages

and prices and thus inflation. The Indonesian Government also placed great stress on


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integrating ethnic groups to prevent conflicts over the distribution of oil revenues

(Perkins et al, 2006, p.680).

The Nigerian Dutch disease experience was sadly much more severe. Nigeria’s political

history is characterised by intense competition among ethnic groups and the government

responded to this by spending all of its oil revenues in an effort to appease rival groups.

Public investment rose from 4 to 30 per cent and public sector wages doubled. Much of

the newfound wealth was squandered on wasteful projects (Perkins et al, 2006, p.682).

Furthermore, during this period the central bank maintained its fixed exchange rate

which, in the context of a substantial widening of the fiscal deficit, saw a massive surge

in inflation. This saw the real exchange rate appreciate by three-fold thus killing off

Nigeria’s non-oil exports which saw a staggering 90 per cent fall in production (Perkins

et al, 2006, p.680). For this reason, many economists argue that the oil boom made

Nigeria significantly worse off.

Despite these being in the context of natural resources, the contrasting experiences of

Indonesia and Nigeria highlight the importance of the country-specific circumstances in

how a country is affected by aid-induced Dutch disease. However it also highlights

some of the specific policies that countries should undertake in response to Dutch

disease symptoms. Let us now explore some of these policies further.

Coordinating and targeting fiscal and monetary policy

A country’s response to Dutch disease needs to be effectively coordinated between the

government and the central bank. However the responses of the government and central

bank also need to be independently well targeted.

A coordinated response

The four scenarios I highlighted in section 2 show that the effects of Dutch disease can

be substantially different depending on the interplay between the government’s

response and the response of the central bank. A good example is the ‘spend but don’t

absorb’ scenario. This scenario is problematic given the double-whammy of inflation it

generates. However Berg et al shows that, despite this, ‘spend but don’t absorb’ is

actually a common response among aid-recipient countries and that this is generally


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because of inadequate coordination between the government and central bank (Berg et

al, 2006, p.3).

Fundamentally, the coordinated response which is chosen by a country needs to be

appropriate for the country’s specific circumstances. A country like Zimbabwe, for

example, which has struggled to control inflation, would be unwise to adopt this ‘spend

but don’t absorb’ response. Similarly a country like Somalia, where starvation is

threatening the lives of over a million people, would be unwise to accumulate foreign

reserves instead of spending aid dollars on its people.

A well targeted response

While it is important that the government and central bank coordinate their responses,

their individual responses also need to be well targeted. In the context of the central

bank, this generally means using monetary policy to reverse the effects of the real

exchange rate appreciation. This typically involves a devaluation of the country’s

currency (Riddell, 2007, p.682).11

The central bank similarly needs to show strong

restraint in terms of expanding the money supply. As was the case with Indonesia, this

has significant effects in terms of curbing inflationary pressures that can further

appreciate the real exchange rate (Perkins et al, 2006, p.680).

In the context of the government, a well targeted response involves spending aid money

on projects and activities that target the supply side and improve the economies’

productivity thus offsetting the losses in competitiveness caused by an appreciated real

exchange rate (Barder, 2006, p.3). Barder found that the governments that were the

most successful in dealing with Dutch disease were those that funnelled funds into

health, education and infrastructure – all of which help boost the productivity, and

hence competitiveness, of the tradables sector (Barder, 2006, pp.2-5).

11 A key reason Nigeria suffered such a significant real exchange rate appreciation compared to

Indonesia is because the latter devalued its nominal exchange rate while the former maintained its fixed exchange rate.


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Managing volatile aid flows

Aid flows vary markedly year-on-year and many suggest that this volatility is in fact

getting worse, not better (Hudson and Mosely, 2006). The graph below shows the stark

volatility of international aid from 1996 to 2008 for Burundi, the Central African

Republic, Guinea-Bissau and Haiti.

Source: World Bank (2008)

The volatility and unpredictability of aid exacerbates the effects of Dutch disease. A

country’s ability to respond to the effects of Dutch disease in a targeted and coordinated

way is made all the more difficult when aid flows are volatile and hard to predict. The

text book response of developing countries to aid inflows is often said to be ‘spend and

absorb’. However, in the short- to medium-term, this response is actually quite rare

(Berg et al, 2006, p.2). In the sample of countries used by Berg et al only a minority of

countries actually did this with the majority of countries instead accumulating foreign

exchange reserves so as to better manage volatile aid flows. Ethiopia and Ghana, for

example, accumulated foreign reserves to bolster the exchange rate peg against the

dollar and manage volatile aid flows, respectively (Berg et al, 2006, p.2).


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These issues highlight two key points. First, the volatility and predictability of aid needs

to be addressed, in line with the fundamental principles of the Paris Declaration12

. And

second, to the extent that these issues are not addressed, countries need to be permitted,

and indeed encouraged, to manage their aid flows effectively. If aid flows are

excessively volatile, then recipient countries should build foreign reserves and use those

reserves to smooth spending and absorption (Berg et al, 2006, p.3). However this can be

politically difficult as donors demand that their aid dollars be used when and where they

dictate – not to mention the risk that aid will not be provided if countries are seen to be

accumulating reserves instead of abiding by their donors wishes. Put simply, fungibility

is not necessarily a bad thing (Pettersson, 2004). By allowing aid to be more fungible (at

least in the short-to-medium run) donors are giving countries the slack required to better

manage their economies.

5. Dutch disease in perspective

So far I have explored the causes, consequences, evidence and remedies for Dutch

disease but have not yet explored whether, in weighing up the costs and benefits of

foreign aid, Dutch disease is actually a problem.

To properly understand the Dutch disease phenomenon we need to understand that it is

inherently a trade-off problem. The most effective way of avoiding aid-induced Dutch

disease is to simply neither absorb nor spend the aid in the first place. However by

neither spending nor absorbing foreign aid the country forgoes the very reason aid was

given in the first place – the benefits of enhanced welfare of its citizens. Whether Dutch

disease is a problem will therefore depend on the relative magnitude of these two effects

(Barder, 2006, p.9).

So which, then, is larger? Do the benefits of foreign aid outweigh the costs of Dutch

disease or is it the other way around? A number of studies find that, in general, even on

pessimistic assumptions the additional consumption and investment which is financed

by aid more than outweighs any likely adverse effects of Dutch disease (Barder, 2006,

p.1). However although these studies are insightful, realistically the answer is likely to

12 The Paris Declaration on Aid Effectiveness, 2005.


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be much more complicated than this. The benefits of foreign aid is a hotly contested

topic and, as discussed earlier, measuring the costs of Dutch disease (and observing

those costs empirically) is a difficult exercise.13

Realistically, whether the benefits of aid will outweigh the costs of Dutch disease will

likely depend on a whole range of factors. What we can say, however, is that there will

be a point – a value of aid-to-GDP – where the costs of foreign aid will begin to

outweigh the benefits. This is because as we increase the aid-to-GDP ratio the benefits

of aid are diminishing while the costs of aid are rising. As countries receive more and

more foreign aid their economies’ absorptive capacity begins to reach its limits – the

first million dollars of aid is substantially more effective than the one-thousandth (see

Radelet et al, 2005). However for Dutch disease the reverse is true. As countries face

larger and larger inflows of foreign currency their ability to manage those inflows

becomes less and less – a country, for example, can only devalue its exchange rate by so

much. The result is that, beyond a certain point, foreign aid will do more damage than

good.

Luckily, most studies suggest that this point is likely to occur at a very high level of aid-

to-GDP (see Gomanee et al, 2003). However this does not mean that aid-induced Dutch

disease is not a problem. As discussed earlier, if left unchecked and un-managed, the

costs of Dutch disease can quickly escalate thus reducing the net-benefit of aid. By

properly managing the effects of Dutch disease countries can ensure that the benefits of

foreign aid can be maximised.

13 Something I haven’t discussed is the distribution of these costs and benefits. The case of Nigeria

highlights that the beneficiaries of foreign aid tend to be those who are politically relevant (poor rural farmers, for example, received very little of the government’s spending of its oil windfalls). Dutch disease similarly has an uneven distribution with those in export-dependent industries being hurt far more than those that manufacture goods for domestic consumption. This inequality of distribution should be kept in mind when we talk about comparing the costs and benefits of foreign aid.


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6. Conclusion

Aid-induced Dutch disease is a scary thought – and there is no shortage of

commentators who are willing to use that fear to jump to alarmist conclusions that the

whole idea of aid should be abandoned as result.14

However the cooler-headed among

us know that, although aid-induced Dutch-disease can cause serious damage to an

economy, at the end of the day it is simply a risk that has to be managed.

Furthermore there are many ways in which this risk can be managed. Although I’ve

shown (in the context of Indonesia and Nigeria) that a country’s specific

macroeconomic circumstances are important, I have outlined four key ways in which

the effects of Dutch disease can be managed and mitigated. These are:

by ensuring that the central bank and government coordinate their response and

that their response is appropriate for their country’s macroeconomic

circumstances;

by ensuring that government spending is restrained and well targeted to areas

that will improve productivity and international competitiveness;

by ensuring that the central bank shows restraint in expanding the money supply

and uses its policy tools to address a real exchange rate appreciation, such as

through a devaluation of its currency; and

by ensuring that aid-recipients have the policy and political flexibility to manage

volatile and unpredictable aid flows.

Dutch disease is a short-term problem for a long-term benefit. But only by properly

managing the effects of Dutch disease can the full benefits of aid be realised.

14 For example, Dambisa Moyo in Dead Aid uses Dutch disease as evidence of the damage aid causes to

developing countries and uses this in her overall argument that ‘the aid taps should be shut off’ (Moyo, 2009, p.144).


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7. References

Adam, Christopher S; Bevan, David L; Aid and the supply side: Public investment,

export performance and Dutch disease in low income countries, Department of

Economics, University of Oxford, August 2004, Discussion Paper Series. Date visited:

13 October 2011, available at: http://economics.ouls.ox.ac.uk/12117/1/paper201.pdf

Barder, Owen, A policymaker’s guide to Dutch disease, Center for Global

Development, Working Paper Number 91, July 2006. Date visited: 13 October 2011,

available at: http://www.cgdev.org/files/8709_file_WP91.pdf

Berg, Andrew et al, The macroeconomics of managing increased aid inflows:

experience of low-income countries and policy implications, International Monetary

Fund, WIDER Conference on Aid, June 2006. Date visited, 13 October 2011, available

at: http://sarpn.org/documents/d0002059/IMF_Macroeconomics_Jun2006.pdf

Cordon and Neary, Booming Sector and De-Industrialisation in a small open economy,

Economic Journal, December, Vol. 92, No. 368 (1982) pp.825-48. Date visited: 13

October 2011, available at: http://www.jstor.org/stable/2232670

Gomanee, Karuna et al, Searching for aid threshold effects, CREDIT Research Paper

No. 03/15, September 2003. Date visited: 13 October 2011, available at:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=482461

Gruen, David, The resources boom and structural change in the Australian economy,

Department of the Treasury (Australia), 24 February 2011. Date visited: 13 October

2011. Available at: http://www.treasury.gov.au/documents/2130/PDF/06_gruen.pdf.

http://economics.ouls.ox.ac.uk/12117/1/paper201.pdfhttp://www.cgdev.org/files/8709_file_WP91.pdfhttp://sarpn.org/documents/d0002059/IMF_Macroeconomics_Jun2006.pdfhttp://www.jstor.org/stable/2232670http://papers.ssrn.com/sol3/papers.cfm?abstract_id=482461http://www.treasury.gov.au/documents/2130/PDF/06_gruen.pdf


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Mankiw, Gregory N., Macroeconomics, 5th Edition, 2003, Worth Publishers

Mosley, Paul, Aid effectiveness: The micro-macro paradox, IDS Bulletin, Volume 17,

Issue 2, pp22-27, April 1986. Date visited: 13 October 2011, available at:

http://onlinelibrary.wiley.com/doi/10.1111/j.1759-5436.1986.mp17002004.x/abstract.

Moyo, Dambisa, Dead Aid: why aid is not working and how there is a better way for

Africa, Farrar, Straus and Giroux, 2009.

Perkins, Dwight H, Radelet, Steven and Lindauer, David L., Economics of

Development, 6th Edition, 2006, W. W. Norton & Company.

Pettersson, Jan, Foreign sectoral aid fungibility, growth and poverty reduction,

Department of Economics, Stockholm University, 1 June 2004. Date Visited: 13

October 2011, available at: http://www.eea-esem.com/papers/eea-

esem/2004/2604/fungJune04.pdf

Rajan, Raghuram G; Subramanian, Arvind, Aid, Dutch disease, and manufacturing

growth, Journal of Development Economics, December 2009. Date visited: 13 October

2011, available at: http://www.iie.com/publications/papers/subramanian0606.pdf

Riddell, Roger C, Does foreign aid really work?, Oxford University Press, New York

2007.

http://onlinelibrary.wiley.com/doi/10.1111/j.1759-5436.1986.mp17002004.x/abstracthttp://www.eea-esem.com/papers/eea-esem/2004/2604/fungJune04.pdfhttp://www.eea-esem.com/papers/eea-esem/2004/2604/fungJune04.pdfhttp://www.iie.com/publications/papers/subramanian0606.pdf


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Sachs, Jeffrey D, The end of poverty: how we can make it happen in our lifetime,

Penguin Group, 2005

Radelet, Steven; Clemens, Michael, Bhavnani, Rikhil, Aid and Growth: New evidence

shows that aid flows aimed at growth have produced results, International Monetary

Fund: Finance and Development, September 2005, Volume 42, Number 3. Date visited:

13 October 2011, available at:

http://www.imf.org/external/pubs/ft/fandd/2005/09/radelet.htm

Graph source:

Appelbaum, Binyamin, How to rebuild a war-torn nation, image sourced from World

Bank data. Date visited, 13 October 2011, available at:

http://rohitkumarsviews.wordpress.com/2011/04/12/how-to-rebuild-a-war-torn-nation/
http://www.imf.org/external/pubs/ft/fandd/2005/09/radelet.htmhttp://rohitkumarsviews.wordpress.com/2011/04/12/how-to-rebuild-a-war-torn-nation/

Documents

The Ranting Economist · 2012. 8. 8. · The Ranting Economist 3 2. The government response – The government has to decide whether to spend the money (and widen the fiscal deficit)