Chapter 11 A Dynamic Analysis of Tied Aid

Abstract

In this paper we examine the impact of tied aid on capital accumulation and welfare in the presence of a quota on imports. Using a simulation model we establish that tied aid can lower the relative domestic price of the manufactured good and therefore reduce the stock of capital. In the presence of a strong production externality from capital accumulation and high tying ratio, tied aid may immiserize the recipient country.

Citation

Chao, C.-C., Hazari, B.R., Laffargue, J.-P. and Yu, E.S.H. (2006), "Chapter 11 A Dynamic Analysis of Tied Aid", Lahiri, S. (Ed.) Theory and Practice of Foreign Aid (Frontiers of Economics and Globalization, Vol. 1), Emerald Group Publishing Limited, Leeds, pp. 173-183. https://doi.org/10.1016/S1574-8715(06)01011-6