Page, JohnDevarajan, ShantayananRobinson, ShermanGo, Delfin S.Thierfelder, Karen2012-05-252012-05-252008-01https://hdl.handle.net/10986/6482Devarajan, Go, Page, Robinson, and Thierfelder argued that if aid is about the future and recipients are able to plan consumption and investment decisions optimally over time, then the potential problem of an aid-induced appreciation of the real exchange rate (Dutch disease) does not occur. In their paper, "Aid, Growth and Real Exchange Rate Dynamics," this key result is derived without requiring extreme assumptions or additional productivity story. The economic framework is a standard neoclassical growth model, based on the familiar Salter-Swan characterization of an open economy, with full dynamic savings and investment decisions. It does require that the model is fully dynamic in both savings and investment decisions. An important assumption is that aid should be predictable for intertemporal smoothing to take place. If aid volatility forces recipients to be constrained and myopic, Dutch disease problems become an issue.CC BY 3.0 IGOABSORPTIVE CAPACITYADJUSTMENT COSTADJUSTMENT COST FUNCTIONADJUSTMENT COSTSAGGREGATE CONSUMPTIONAGGREGATE DEMANDAGGREGATE SUPPLYBALANCE OF PAYMENTSBALANCE OF TRADEBASE YEARBEHAVIOR OF INVESTMENTBIDBUDGET CONSTRAINTCAPITAL ACCUMULATIONCAPITAL FORMATIONCAPITAL GOODSCAPITAL GOODS IMPORTCAPITAL INFLOWCAPITAL INFLOWSCAPITAL STOCKCOMMERCIAL LOANCOMMERCIAL LOANSCOMMODITY PRICESCOMPETITIVENESSCONSUMER PREFERENCESCONSUMERSCONSUMPTION DECLINESCONSUMPTION EXPENDITURESCONSUMPTION SMOOTHINGCORPORATE INVESTMENTCOST OF INVESTMENTCURRENCYCURRENT ACCOUNTCURRENT ACCOUNT BALANCEDEBTDEBT ACCUMULATIONDEBT CRISISDEBT MARKETDEBT RATIODEBT REDUCTIONDEBT RELIEFDEBT REPAYMENTSDEBT SERVICEDEBT STOCKDEBT SUSTAINABILITYDEFAULT RISKDEPRECIATIONDEPRECIATION RATEDEPRESSIONDEVELOPING COUNTRIESDEVELOPING COUNTRYDEVELOPMENT ECONOMICSDIRECTION OF TRADEDISBURSEMENTSDISCOUNT RATEDISCOUNT RATESDOMESTIC GOODDOMESTIC GOODSDOMESTIC INTEREST RATEDOMESTIC PRICEDOMESTIC PRICESDUTCH DISEASEDYNAMIC ANALYSESDYNAMIC CONSISTENCYECONOMETRIC ESTIMATESECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC OUTCOMESECONOMIC POLICIESECONOMIC RESEARCHECONOMIC THEORYELASTICITYELASTICITY OF SUBSTITUTIONEQUATIONSEQUILIBRIUMEXCHANGE RATE DYNAMICSEXOGENOUS SHOCKSEXPENDITUREEXPENDITURESEXPORT COMPETITIVENESSEXPORT PERFORMANCEEXPORT SHAREEXPORT SHARESEXPORTSEXTERNAL BORROWINGEXTERNAL BORROWINGSEXTERNAL DEBTEXTERNAL FINANCINGEXTERNAL SHOCKEXTERNAL SHOCKSEXTERNALITIESEXTREME POVERTYFISCAL POLICYFIXED EXCHANGE RATEFOREIGN CAPITALFOREIGN DEBTFOREIGN INDEBTEDNESSFOREIGN INFLOWSFOREIGN INVESTMENTSFREE TRADEGDPGENERAL EQUILIBRIUMGENERAL EQUILIBRIUM MODELGLOBAL ECONOMYGLOBALIZATIONGOVERNMENT BUDGETGOVERNMENT REVENUEGOVERNMENT SAVINGSGROSS DOMESTIC PRODUCTGROWTH RATEGROWTH RATESHUMAN CAPITALIMPORTIMPORT DEMANDIMPORT PRICEIMPORT PRICESIMPORT TARIFFSIMPORTSINCENTIVE EFFECTSINCOMEINCOME LEVELSINCOME TAXINDUSTRIALIZATIONINTEREST PARITYINTEREST RATEINTEREST RATESINTERNATIONAL BANKINTERNATIONAL DEVELOPMENTINTERNATIONAL FINANCEINTERNATIONAL LENDINGINTERNATIONAL RESERVESINTERNATIONAL TRADEINVESTINGINVESTMENT CAPITALINVESTMENT DECISIONSINVESTMENT EXPENDITUREINVESTMENT EXPENDITURESINVESTMENT RATIOINVESTMENT RISESLABOR MARKETLOW-INCOME COUNTRIESLOW-INCOME COUNTRYMACROECONOMIC INSTABILITYMACROECONOMIC MANAGEMENTMACROECONOMIC STABILITYMACROECONOMICSMARGINAL COSTMARGINAL PRODUCTIVITYMARKET DISCOUNTMARKET EQUILIBRIUMMONETARY FUNDNOMINAL EXCHANGE RATEOIL RESERVESOPEN ECONOMYOPTIMAL INVESTMENTOPTIMIZATIONOVERVALUATIONPOLICY RESPONSEPOLICY RESPONSESPRICE CHANGEPRICE HIKEPRICE OF EXPORTSPRICE OF INVESTMENT GOODSPRIVATE CAPITALPRODUCTION FUNCTIONPRODUCTIVITYPRODUCTIVITY GROWTHPUBLIC EXPENDITURESPUBLIC EXTERNAL DEBTPUBLIC INVESTMENTPURCHASE PRICEPURCHASING POWERRATE OF RETURNREAL APPRECIATIONREAL DEPRECIATIONREAL EXCHANGE APPRECIATIONREAL EXCHANGE RATEREAL EXCHANGE RATE ^ ^ ^ CHANGEREAL EXCHANGE RATE APPRECIATIONREAL EXCHANGE RATESRELATIVE PRICERELATIVE PRICESREMITTANCESREPAYMENTREPUDIATIONRESERVESRETURNRETURNSRISK PREMIUMSAVINGSSIDE EFFECTSSOVEREIGN RISKSTEADY STATESTOCK MARKETSTRONG COMMODITYSUPPLY CURVESUPPLY RESPONSESUPPLY SIDETAXTAX CREDITSTAX RATETAXATIONTIME HORIZONTOTAL FACTOR PRODUCTIVITYTOTAL INVESTMENTTRADE BALANCETRADE LIBERALIZATIONTRADE OPENNESSTRADE POLICYTRADE SHARETRADE SHARESTRADE SHOCKUNCERTAINTYVALUE ADDEDWORLD ECONOMYWORLD INTEREST RATEWORLD MARKETSWORLD PRICEWorld Bank10.1596/1813-9450-4480