aid, exports, and growth: a time-series perspective on the dutch disease hypothesis by IDB

IDB WORKING PAPER SERIES No. IDB-WP-114

Aid, Exports, and Growth: A Time-Series Perspective on the Dutch Disease Hypothesis Joong Shik Kang Alessandro Prati Alessandro Rebucci

August 2010

Inter-American Development Bank Department of Research and Chief Economist

Aid, Exports, and Growth: A Time-Series Perspective on the Dutch Disease Hypothesis

Joong Shik Kang* Alessandro Prati* Alessandro Rebucci**

* International Monetary Fund ** Inter-American Development Bank

Inter-American Development Bank 2010

Cataloging-in-Publication data provided by the Inter-American Development Bank Felipe Herrera Library Kang, Joong Shik. Aid, exports, and growth : a time-series perspective on the Dutch disease hypothesis / Joong Shik Kang, Alessandro Prati, Alessandro Rebucci. p. cm. (IDB working paper series ; 114) Includes bibliographical references. 1. Economic assistanceâ&#x20AC;&#x201D;Economic aspects. 2. International finance. I. Prati Musetti, Alessandro. II. Rebucci, Alessandro. III. Inter-American Development Bank. Research Dept. IV. Title. V. Series. HC60.S55 2010

ÂŠ Inter-American Development Bank, 2010 www.iadb.org

Documents published in the IDB working paper series are of the highest academic and editorial quality. All have been peer reviewed by recognized experts in their field and professionally edited. The information and opinions presented in these publications are entirely those of the author(s), and no endorsement by the Inter-American Development Bank, its Board of Executive Directors, or the countries they represent is expressed or implied. This paper may be freely reproduced provided credit is given to the Inter-American Development Bank. IDB Research Department, 1300 New York Avenue, NW, Washington DC 20577 Corresponding author: Alessandro Rebucci, AlessandroR@iadb.org

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Figure 1. Global Aid ( i.e., Average Aid-to-GDP, 1966-2002) 1/ 0.16 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1/ Average across countries, for each period, of individual aid-to-GDP series.

1996

1999

2002

Figure 2. Alternative Measures of Global Aid (1966-2002)

.05

Figure 3. Per Capita GDP Growth and Export to GDP: Cumulative Impulse Responses to Global Aid Shock

EGY

Per Capita Growth -.05 0

TGO NER

SLE

BEN

LKA ISR CIV BGD MAR BOL HTIBFA NPL CAF RWA MLI KEN ZAR MDG BDI

MRT

HND

CMR

-.1

NIC COG

-.1

Coef. = 0.4698092

-.05

P-value = 0.001

0 Export to GDP

.05

Figure 4. Cumulative Impulse Response to Global Aid Shock (Grouped by Growth Response) Positive Response Group Mean

Negative Response Group

m-sd

m+sd

m-2*sd

Mean

m+2*sd

m-sd

m+sd

m-2*sd

m+2*sd

Aid

Aid 2.5

2.5

2.1

1.7

1.3

0.9

0.5

0.5 1

Export to GDP

10 11 12 13 14 15 16 17 18 19 20

Export to GDP

0.06

0.04

0.02

0.00

0.00 1

-0.02

-0.04

-0.06

Figure 4., continued Positive Response Group

Negative Response Group

Import to GDP

0.08

0.06

0.04

0.02

0.00 -0.02

0.00 1

-0.02

-0.04

-0.06

Per capita GDP

0.03

0.02

0.01

-0.01 -0.02 -0.03

-0.03 -0.04 -0.04

10 11 12 13 14 15 16 17 18 19 20

0.00

-0.02

Per capita GDP

0.03

-0.01

10 11 12 13 14 15 16 17 18 19 20

Figure 5. Cumulative Impulse Response to Global Aid Shock (Grouped by Export Response) Positive response group Mean

Negative response group

m-sd

m+sd

m-2*sd

Mean

m+2*sd

m-sd

m+sd

m-2*sd

m+2*sd

Aid

Aid 2.5

2.5 2.1

2.0

1.7 1.5 1.3 1.0

0.9 0.5

0.5 1

Export to GDP

0.08 0.08 0.06

0.06

0.04

0.02

0.00 -0.02 -0.04 -0.06

0.00 1

10 11

12 13 14

15 16 17 18

19 20

-0.02 -0.04 -0.06

10 11 12 13 14 15 16 17 18 19 20

Figure 5., continued Positive response group

Negative response group Import to GDP

Import to GDP

0.08

0.06

0.04

0.02

0.00 -0.02

0.00 1

-0.02

-0.04

-0.06

Per capita GDP

0.03

0.02

0.01

0.00

0.00 1

-0.01

-0.02

-0.03

Figure 6. Variance Shares Due to Global Aid Shock Panel A. Exports to GDP Positive response group

Negative response group Positive (grouped by GDP response to AID)

Positive (grouped by GDP response to AID)

100

0 1

Mean

m-sd

10 11 12 13 14 15 16 17 18 19 20

m+sd

m-2*sd

m+2*sd

Mean

Positive (grouped by EXPORTS response to AID)

m-sd

9 10 11 12 13 14 15 16 17 18 19 20

m+sd

m-2*sd

m+2*sd

Negative (grouped by EXPORTS response to AID)

100

0 1

Mean

m-sd

10 11 12 13 14 15 16 17 18 19 20

m+sd

m-2*sd

m+2*sd

Mean

m-sd

9 10 11 12 13 14 15 16 17 18 19 20

m+sd

m-2*sd

m+2*sd

Panel B. Per Capita GDP Growth Positive response group

Negative response group Positive (grouped by GDP response to AID)

Positive (grouped by GDP response to AID)

100

10 0

0 1

Mean

m-sd

10 11 12 13 14 15 16 17 18 19 20

m+sd

m-2*sd

Mean

m+2*sd

Positive (grouped by EXPORTS response to AID)

m-sd

10 11 12 13 14 15 16 17 18 19 20

m+sd

m-2*sd

m+2*sd

Negative (grouped by EXPORTS response to AID)

100

0 1

Mean

m-sd

10 11 12 13 14 15 16 17 18 19 20

m+sd

m-2*sd

m+2*sd

Mean

m-sd

10 11 12 13 14 15 16 17 18 19 20

m+sd

m-2*sd

m+2*sd