Dobronogov, AntonKeutiben, Octave2014-08-152014-08-152014-06https://hdl.handle.net/10986/19370An abundance of natural resources is both an opportunity and a challenge for developing countries. Several resource-rich, low-income countries receive amounts of foreign aid that are similar to or larger than their actual or potential revenues from natural resources. In such countries, the donors may have an opportunity to help a government to use its resource revenues productively and minimize the magnitude of risks created by resource rents. Development of aid instruments tailored for such purposes might be helped by model-based analysis of the effects of foreign aid on resource-rich, low-income economies and its interactions with the flows of natural resource revenues. This paper develops a growth model a la Barro in which the government receives windfalls (from natural resources and foreign aid) and rent-seeking agents contest for public funds. The key conclusion is that making aid countercyclical helps to achieve higher economic growth, and so does conditioning disbursements on enhancement of public capital. Introducing elements of insurance in the design of both aid products financing investments in infrastructure and social services and supporting policy and institutional reforms may help to achieve both of these objectives.en-USCC BY 3.0 IGOACCOUNTINGAID EFFECTIVENESSALLOCATIONAMOUNT OF CAPITALBOOM­BUST CYCLEBOOM­BUST CYCLESBUDGET CONSTRAINTBUDGETINGCAPITAL ACCUMULATIONCAPITAL INVESTMENTCAPITAL MARKETSCAPITAL STOCKCASH FLOWSCIVIL WARCOMMODITYCOMMODITY PRICECONSUMPTION RATESCORRUPTIONDEBTDEVELOPING COUNTRIESDEVELOPMENT ASSISTANCEDEVELOPMENT BANKSDEVELOPMENT ECONOMICSDEVELOPMENT POLICYDISBURSEMENTDISBURSEMENTSDISPOSABLE INCOMEDOMESTIC ECONOMYDONOR AGENCIESECONOMIC ACTIVITYECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC PERFORMANCEECONOMIC REFORMSEXPECTED UTILITYEXPECTED VALUEEXPENDITUREEXPENDITURESEXPORTERSFACTORS OF PRODUCTIONFINANCIAL MANAGEMENTFINANCIAL MARKETFINANCIAL RESOURCESFISCAL RESOURCESFUNGIBLEGDPGOVERNMENT BUDGETGOVERNMENT EXPENDITUREGOVERNMENT FUNDSGOVERNMENT REVENUEGOVERNMENT REVENUESGOVERNMENT SAVINGGOVERNMENT SPENDINGGROWTH RATEGROWTH RATESHOUSEHOLDSHUMAN CAPITALINCOMEINCOME TAXINDEXATIONINEQUALITYINFRASTRUCTURE PROJECTSINSTITUTIONAL REFORMSINSURANCEINTERNATIONAL BANKINTERNATIONAL BORROWINGINTERNATIONAL CAPITALINTERNATIONAL CAPITAL MARKETSINTERNATIONAL ECONOMICSINTERNATIONAL MARKETSINVESTMENT PROJECTSINVESTMENT RATELEVIESLOW-INCOME COUNTRIESLOW-INCOME COUNTRYLOW-INCOME ECONOMIESMACROECONOMIC INSTABILITYMACROECONOMIC STABILITYMACROECONOMIC VOLATILITYMACROECONOMICSMARGINAL COSTMARGINAL PRODUCTMARGINAL PRODUCTIVITYMARGINAL UTILITYMARGINAL UTILITY OF CONSUMPTIONMARKET ACCESSMONETARY FUNDMONETARY POLICYMULTILATERAL DEVELOPMENTNATURAL RESOURCENATURAL RESOURCESOIL PRICESOPEN ECONOMIESOUTPUTPHYSICAL CAPITALPOLITICAL ECONOMYPOPULISMPOSITIVE EXTERNALITIESPRICE VOLATILITYPRIVATE CAPITALPRIVATE INVESTMENTPRIVATE SECTORPUBLIC FINANCEPUBLIC FUNDSPUBLIC INVESTMENTPUBLIC INVESTMENTSPUBLIC SECTORPUBLIC SPENDINGREAL EXCHANGE RATERENT SEEKINGREPUBLICRESERVESSTATE INTERVENTIONTAXTAX RATETAX RULETAXATIONTECHNICAL ASSISTANCETRANSPARENCYUTILITY FUNCTIONVARIABLE RATEWEALTH10.1596/1813-9450-6956