TY - UNPB

T1 - The Real Exchange Rate, Foreign Aid and Macroeconomic Transmission Mechanisms in Tanzania and Ghana

AU - Juselius, Katarina

AU - Reshid, Abdulaziz Abrar

AU - Tarp, Finn

PY - 2014

Y1 - 2014

N2 - A recent study of 36 Sub Saharan African countries found a positive impact of aidin the absolute majority of these countries. However, for Tanzania and Ghana, twomajor aid recipients, aid did not seem to have been equally bene…cial. This papersingles out these two countries for a more detailed empirical investigation. The focus is now on the effect of aid when allowing external and nominal facors to play a role in the maccroeconomic transmission mechanism. We conclude that aid played a signi…cantly positive - but very different - role in the two countries. Due in part to generous aid infl‡ows Tanzania experienced positive investment and GDP growth from the late 1960s to 2007. But, until the mid-1980s, the impact of aid on growth was well below its potential as the large in‡ows of aid facilitated a serious overappreciation of the real exchange rate. In Ghana, declining aid in the 1970s was associated with lacking growth while the reactivation of aid ‡ows in the 1980s supported an economic rebound. When monetary and external factors are properly accounted for, we …nd that aid has been pivotal to growth in both real GDP and investment.

AB - A recent study of 36 Sub Saharan African countries found a positive impact of aidin the absolute majority of these countries. However, for Tanzania and Ghana, twomajor aid recipients, aid did not seem to have been equally bene…cial. This papersingles out these two countries for a more detailed empirical investigation. The focus is now on the effect of aid when allowing external and nominal facors to play a role in the maccroeconomic transmission mechanism. We conclude that aid played a signi…cantly positive - but very different - role in the two countries. Due in part to generous aid infl‡ows Tanzania experienced positive investment and GDP growth from the late 1960s to 2007. But, until the mid-1980s, the impact of aid on growth was well below its potential as the large in‡ows of aid facilitated a serious overappreciation of the real exchange rate. In Ghana, declining aid in the 1970s was associated with lacking growth while the reactivation of aid ‡ows in the 1980s supported an economic rebound. When monetary and external factors are properly accounted for, we …nd that aid has been pivotal to growth in both real GDP and investment.

M3 - Working paper

T3 - University of Copenhagen. Institute of Economics. Discussion Papers (Online)

BT - The Real Exchange Rate, Foreign Aid and Macroeconomic Transmission Mechanisms in Tanzania and Ghana

PB - Økonomisk institut, Københavns Universitet

CY - Kbh.

ER -