Aid and exchange rates in sub-Saharan Africa: Nomore dutch disease?

Arbeitspapier

Given the significant inflows of foreign aid to sub-Saharan Africa (SSA) the possibility of Dutch Disease has been a concern. Most macroeconomic models predict that aid inflows, especially if large and/or unanticipated (shocks), will lead to an appreciation of the real exchange rate and undermine the competitiveness of the economy. Empirical evidence is inconclusive, but a common presumption is that aid has been associated with Dutch Disease effects in SSA. Previous empirical studies rely on annual data and few include data since themid-2000s. This paper focuses on themore recent period employing monthly time series data for ten countries over 2001 to 2017 to estimate a structural VAR. For the majority of countries aid has no or a minimal effect on the real exchange rate; there is evidence of a significant real appreciation in only two countries. Additional analysis shows that commodity export prices are a more important determinant of the real exchange rate, with an effect on average twice that of aid. The paper conjectures that the absence of a Dutch Disease effect since the 2000s is due to a declining level of aid inflows and improved macroeconomic management.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CREDIT Research Paper ; No. 19/07

Classification and Topics

• Classification: Wirtschaft ; Foreign Exchange ; Foreign Aid ; Macroeconomic Analyses of Economic Development ; Economywide Country Studies: Africa
• Subject: Foreign Aid ; Exchange Rates ; Dutch Disease ; sub-Saharan Africa

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Morrissey, Oliver ; Roger, Lionel ; Spreng, Lars
• Event: Veröffentlichung
• (who): The University of Nottingham, Centre for Research in Economic Development and International Trade (CREDIT)
• (where): Nottingham
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/210858
• Last update: 10.03.2025, 11:42 AM CET