Business Cycle Fluctuations, Large Macroeconomic Shocks, and Development Aid
Authors
Camelia Minoiu
Era-Dabla Norris
Felipe Zanna
Type
Article
Publisher
Elsevier - World Development Journal
Pages
Volume 69, May 2015, Pages 44–61
Date
01-05-2015

Abstract

We examine the cyclical properties of development aid using bilateral data for 22 donors and 113 recipients during 1970–2005. We find that bilateral aid flows are on average procyclical with respect to the business cycle in both donor and recipient countries. While aid outlays contract sharply during severe downturns in donor countries, they rise steeply when aid-receiving countries experience large adverse shocks. Our findings suggest that development aid may play an important cushioning role in developing countries, but only during times of severe macroeconomic stress. Our results are robust to alternate definitions of aid flows, specifications, and estimation techniques.

Article.