Aid and sectoral labour productivity

No 1468, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: The paper examines empirically the proposition that aid to poor countries is detrimental for external competitiveness, giving rise to Dutch disease type effects. At the aggregate level, aid is found to have a positive effect on growth of labour productivity. A sectoral decomposition shows that the effect is significant and positive both in the tradables and the nontradables sectors. The paper thus finds no empirical support for the hypothesis that aid reduces external competitiveness in developing countries. Possible reasons are the existence of large idle labour capacity and high levels of dollarization in financial liabilities at the firm level.

Keywords: Foreign aid; sectoral labour productivity; Dutch disease (search for similar items in EconPapers)
JEL-codes: F35 O47 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:1468

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