Volatility widens inequality. Could aid and remittances help?

Review of World Economics - We analyse the relationship between income volatility and inequality and the conditional role played by aid and remittances. Using a panel of 142 countries for the...     

Aid and Income Stabilization

The potential stabilization of output shocks through official assistance flows is investigated is this paper. It contributes to the current debate on aid instability and argues that official assistance might cope with exogenous output shocks in recipient countries and stabilize resources available for national expenditure, including consumption and investment. High aid dependency and vulnerability to output shocks positively affect the stabilization property of aid. Contrasting with the current literature, the paper documents that aid volatility is not a significant determinant of the stabilizing or destabilizing impact of aid.     

Stratégies de développement et ouverture sur l'extérieur

Résurné: Cet article examine d'abord la notion de strategie de developpe- ment: il en propose une definition et des criteres de mesure: la strategie de developpement, mode de developpement choisi par le pays, autrement dit ce qui ne resulte pas de I'environnement, est appreciee a travers divers indicateurs, dits de performance, de choix structurels et de choix instrumentaux. Les indi- cateurs sont mesures en purgeant les donnees brutes de I'influence de l'envi- ronnement. Abstract: This paper first considers the concept of development strategy, of which it offers a definition and measurement criteria. Development strategy is defined as the development pattern chosen by the country, that is to say the pattern which does not result from the environmental factors. It can be appreciated by several indicators of ‘performance’, ‘structural choices’ and ‘instrumental choices’, most of them measured by eliminating from gross variables the influence of the environment. This methodology is then applied to the study of the trade strategy. The ‘openness’ of ‘outward orientation’ is here defined and measured by the level of export-GDP ratio which does not result from environment. Environmental variables acting on the export ratio, as estimated by a cross-sectional analysis, are the per capita income level, the country size, and the mineral exports. This ‘revealed’ outward (or inward) orientation is compared between African and non African countries. Finally, the implications of an informal trade for the outward orientation index are discussed in the case of African countries.     

Deforestation and the real exchange rate

Deforestation is a phenomenon that has largely been concentrated in the developing world. We construct a theoretical model of deforestation that focuses on the factors affecting the incentives to transform forested land into agricultural land. We show that: (i) lower discount rates and stronger institutions decrease deforestation; (ii) a depreciation in the real exchange rate increases deforestation in developing countries whereas the opposite obtains in developed countries; (iii) paradoxically, better institutions may exacerbate the deleterious impact of a depreciation in developing countries. These hypotheses are tested on an annual sample of 101 countries over the 1961–1988 period, and are not rejected by the data. Our results suggest that short-term macroeconomic policy, institutional factors, and the interaction between the two, are potentially important determinants of environmental outcomes.     

How instability lowers African growth

This paper aims to assess the role of instabilities on Africa'slow rates of growth during the seventies and eighties, usingcross-section econometric estimates, on a sample of Africanand non-African countries and two pooled decades. Africa exhibitshigher 'primary' instabilities (climatic, terms of trade andpolitical instabilities), i.e., instabilities which are structuralrather than the result of policy. These 'primary' instabilitiesinfluence African growth more through a lower growth residualthan through a lower average rate of investment. They do soby their impact on economic policy, which is evidenced by theirinfluence on two 'intermediate' instabilities, the instabilitiesof the rate of investment and of the real exchange rate, whichsignificantly lower the rate of growth.     

The transactions demand for money in the presence of currency substitution: evidence from Vietnam

Currency substitution – the use of foreign money to finance transactions between domestic residents – is widespread in low income and transition economies. Traditionally, however, empirical models of the demand for money tend to concentrate on the portfolio motive for holding foreign currency, while maintaining the assumption that the income elasticity of demand for domestic money is invariant to the degree of currency substitution. A simple re-specification of the demand for money is offered which more accurately reflects the process of currency substitution by allowing for a variable income elasticity of demand for domestic money. This specification is estimated for Vietnam in the 1990s. Using a standard cointegration framework evidence is found for currency substitution only in the long-run but well-defined wealth effects operating in the short-run.