The authors examine the effects of aid on the growth of manufacturing using a methodology that exploits the variation within countries and across manufacturing sectors and that corrects for possible reverse causality. They find that aid inflows have systematic adverse effects on a country’s competitiveness, as reflected in the lower relative growth rate of exportable industries. They provide some evidence suggesting that the channel for these effects is the real exchange rate appreciation caused by aid inflows. This may explain, in part, why it is hard to find robust evidence that foreign aid helps countries grow.
Related Content: David Roodman blogs on the topic; Subramanian responds.
Preview
Topics
CITATION
G. Rajan, Raghuram, and Arvind Subramanian. 2009. Aid, Dutch Disease, and Manufacturing Growth - Working Paper 196. Center for Global Development.DISCLAIMER & PERMISSIONS
CGD's publications reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions. You may use and disseminate CGD's publications under these conditions.
