Foreign aid and domestic absorption

Jon Temple, Nicolas Van de Sijpe

Research output: Contribution to journalArticle (Academic Journal)peer-review

32 Citations (Scopus)
292 Downloads (Pure)


This paper introduces a new ‘supply-push’ instrument for foreign aid, to be used together with an instrumental variable estimator that filters out unobserved common factors. We use this instrument to study the effects of aid on macroeconomic ratios, and especially the ratios of consumption, investment, imports and exports to GDP. We cannot reject the hypothesis that aid is fully absorbed rather than used to build foreign reserves or exiting as capital flight, nor do we find evidence of Dutch Disease effects. Aid leads to higher consumption, while the evidence that it promotes investment is less robust.
Original languageEnglish
Pages (from-to)431-443
Number of pages13
JournalJournal of International Economics
Early online date5 Aug 2017
Publication statusPublished - Sept 2017

Structured keywords

  • ECON Macroeconomics


  • Foreign aid
  • Absorption
  • Dutch Disease
  • Common correlated effects


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