Second, national income and fiscal revenues are more likely to be influenced by aid disbursements than exports. These three components of the stabilizing character of aid can compensate or reinforce each other.

Using this indicator, we argue that a pro‐cyclical aid can still be stabilizing, and that there may be cases where aid is contra‐cyclical and destabilizing, depending on the relative volatility of aid with respect to exports.

Cross Country Evidence on the Link Between Volatility and Growth. For the purpose of our present analysis we use an even narrower concept of vulnerability; that is we focus on that part of vulnerability due to external trade shocks, as captured by exports instability.

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See Photos. Evidence from World Bank Post-Project Evaluations. To assess the stabilizing character of aid we build an index which is the difference between the volatility of exports and the volatility of aid plus exports: If the difference is positive, aid is considered as stabilizing; if it is negative, aid is seen as destabilizing (with regard to exports). The trend is here estimated on the whole period under consideration (referred below as the global adjustment method). Here we analyze the pro‐ or contra‐cyclicality of aid mainly with respect to exports, because exports volatility, which results to a large extent from commodity price shocks, is more likely to be exogenous than national income or fiscal revenue volatility. Ronald Guillaumont is on Facebook.

The first two columns of Table 3 present the estimation of the baseline model.

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It may be particularly relevant for African countries, which are highly vulnerable and where the prospects of aid increase mainly apply. But it is not the only relevant one to determine whether aid inflows are stabilizing or destabilizing. The 2004 paper used a narrower concept, limited to exports instability and (negative) terms of trade trend.5. This is why the volatility of aid is not so much prosecuted as its unpredictability and its pro‐cyclicality. In section 2 we will assess the concepts of aid volatility, pro‐cyclicality, and stabilizing impact.

Coping with Chile's External Vulnerability: A Financial Problem, Central Banking Analysis and Economic Policies, Aid and Growth Revisited: Policy, Economic Vulnerability and Political Instability, Toward Pro‐Poor Policies: Aid, Institutions and Globalization, Ouverture sur l'extérieur et instabilité des taux de croissance, Shaken and Stirred: Explaining Growth Volatility, Annual Bank Conference on Development Economics, Macro Vulnerability in Low‐Income Countries and Aid Responses, Securing Development in an Unstable World, Postwar U.S. Business Cycles: An Empirical Investigation, When It Rains, It Pours: Procyclical Macropolicies and Capital Flows and Policies, Aid Instability as a Measure of Uncertainty and the Positive Impact of Aid on Growth, Aid Effectiveness and Selectivity: Integrating Multiple Objectives into Aid Allocations.

Les petites économies insulaires en développement. Growth volatility and inequality in the U.S.: A wavelet analysis. However, the cushioning effect of aid may involve some volatility in aid flows, which then is not necessarily negative for growth.

Due to the uncertainty about the deterministic or stochastic nature of this trend, it is convenient to estimate an equation of the following form: The predicted value, , is the trend component, while the residual, εt, is the cycle component. According to the estimation method, we use the two sets of instruments presented in section 3. In previous papers the authors have argued that aid is likely to mitigate the negative effects of external shocks on economic growth (i.e.

We also use the application of the GMM method proposed by Arellano and Bond (1991) in which first‐differenced equations are instrumented by lagged level variables. Following Bulíř and Hamann (2001, 2003, 2005), Pallage and Robe (2001) and Rand and Tarp (2002), an H‐P filter (Hodrick and Prescott, 1997) can be used to extract the trend and cycle components of aid and of the reference flow, here exports. And when it is contra‐cyclical, it is stabilizing only as far as its volatility does not exceed a certain threshold.

We have 239 observations, corresponding to the 102 contra‐cyclical versus 137 pro‐cyclical cases (significant or not). Could aid and remittances help?. In this paper the authors examine to what extent the time profile of aid disbursements may contribute to an increase or a decrease of aid effectiveness.

However regressions (3) and (4) suggest that there may be a specific impact of the level of aid in countries facing an instability of exports, distinct from what we have called its stabilizing impact (with respect to exports): the latter depends on the year‐to‐year time profiles of aid and exports (contra‐cyclicality, relative volatility, etc. If you do not receive an email within 10 minutes, your email address may not be registered, Finally, we use the system GMM method proposed by Arellano and Bover (1995) and Blundell and Bond (1998).

This video is unavailable. Some papers rely on cross‐country or panel regressions (the first two quoted above), others on time series for each country, trying to measure factors explaining a conditional variance (Raddatz, 2005). Pro‐cyclical aid can still be stabilizing if its volatility is lower than that of exports. Annals of Public and Cooperative Economics. Join Facebook to connect with Romuald Guillaumond and others you may know. Even if it is pro‐cyclical aid is stabilizing with respect to exports when its volatility is lower than that of exports. Ronald Guillaumont. In regressions (1) and (2) only the stabilizing impact of the level of aid was captured through the multiplicative term.

The second step of our econometric analysis of aid effectiveness consists in estimating a baseline model of the form: where yi,t is the logarithm of real income per capita (PWT 6.1) of country i (i = 1 .

that aid is more effective in countries which are more vulnerable to external shocks).

They finally show through growth regressions that the higher effectiveness of aid in vulnerable countries is to a large extent due to its stabilizing effect.

Because the instability of exports is not the only kind of exogenous shocks faced by low income countries, in section 3 we will study the stabilizing or destabilizing character of aid in a broader perspective.

As to the way we measure volatility, we use the two different methods presented in section 2.2. Friends: Photos: Videos: Photos. Use the link below to share a full-text version of this article with your friends and colleagues. the total budget of aid of the five major donors weighted by distance variables: cultural distance (same language, same religion) and geographical distance (distance from Brussels, Tokyo, and Washington). Instruments used for aid are those of Tavares (2003), i.e. The full text of this article hosted at iucr.org is unavailable due to technical difficulties.

Working off-campus? First, as far as we are concerned by macroeconomic vulnerability to external shocks, it is better to compare aid with the aggregate most likely to be affected by exogenous shocks. Join Facebook to connect with Ronan Guillaume and others you may know.

Ronald Guil. The respective volatilities of aid and exports are measured by the standard errors of the residuals.

This concern has been reinforced by the prospect of an acceleration of disbursements in order to achieve the Millennium Development Goals. What is the real picture? Growth, Poverty and Development Assistance: When Does Foreign Aid Work?. Either way, they did not measure the impact of the aid average level and volatility on multiyear income volatility, which is what we now try to do.