Advertisement

Tied Aid, Unemployment and Welfare

  • Sajal Lahiri
  • Pascalis Raimondos-Møller

Abstract

The effect of foreign aid on the welfare levels of both the recipient and the donor country has been a much analysed topic for research in both the theory of international trade and development economics. In the development economics literature, concerns have been raised since the 1960s on the possible adverse effect of foreign aid on domestic savings and growth.1 The trade theory literature in this respect is much older and dates back to the 1920s when Professors Keynes and Ohlin debated on the effect of foreign aid on international terms of trade.2 Ever since, the terms of trade effect has been the cornerstone in the analysis of the welfare effect of foreign aid in the trade theory literature.3 After some early confusion, it is now well established that in a Walrasian stable world economy with two countries, a necessary condition for foreign aid to have perverse effects is that there is some distortion in either of the two countries.4 It is also known that, under normality and substitutability of goods, untied aid cannot be strictly Pareto-improving in a tariff distorted world.5

Keywords

Labour Market International Trade Employment Effect Recipient Country Reservation Wage 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Beladi, H. (1990) ‘Unemployment and immiserizing transfer’, Journal of Economics/Zeitschrift für Nationalökonomie, 3, pp. 253–265.CrossRefGoogle Scholar
  2. Bhagwati, J. N. (1985) ‘The tying of aid’, in: G. Grossman (ed.) Dependence and interdependence (Oxford: Basil Blackwell) pp. 204–251.Google Scholar
  3. Bhagwati, J. N., Brecher, R. and Hatta, T. (1985) ‘The generalized theory of transfers and welfare: exogenous (policy-imposed) and endogenous (transfer-induced) distortions’, Quarterly Journal of Economics, 3, pp. 697–714.CrossRefGoogle Scholar
  4. Brecher, R. and Bhagwati, J. N. (1982) ‘Immiserising transfers from abroad’, Journal of International Economics, 13, pp. 353–364.CrossRefGoogle Scholar
  5. Cassen, R. (1988) Does aid work? (Oxford: Clarendon Press).Google Scholar
  6. Hatzipanayotou, P. and Michael, M. S. (1995) ‘Foreign aid and public goods’, Journal of Development Economics.Google Scholar
  7. Kemp, M. C. (1992) ‘The static welfare economics of foreign aid: A consolidation’, in D. Savoie and I. Brecher, (eds), Equity and efficiency in economic development: essays in honor of Benjamin Higgins (Montreal: McGill-Queens University Press) pp. 289–314.Google Scholar
  8. Kemp, M. C., and Kojima, S. (1985) ‘Tied aid and the paradoxes of donor-enrichment and recipient-impoverishment’, International Economic Review 26, pp. 721–729.CrossRefGoogle Scholar
  9. Keynes, J. M., 1929, ‘The German transfer problem’, Economic Journal 39, pp. 1–17.CrossRefGoogle Scholar
  10. Lahiri, S. and Raimondos, P. (1995a) ‘Welfare effects of aid under quantitative trade restriction’, Journal of International Economics, 39, pp. 297–315.CrossRefGoogle Scholar
  11. Lahiri, S. and Raimondos, P. (1995b) ‘Food aid and food production: a theoretical analysis’, forthcoming in a festschrift in honour of Professor J. N. Bhagwati (ed. V. N. Balasubramanyan).Google Scholar
  12. Lahiri, S. and Raimondos, P. (1995c) ‘On the tying of aid to tariff reform’, Working paper No. 4, University of Essex.Google Scholar
  13. Maizels, A. and Nissanke, M. K. (1984) ‘Motivations for aid to developing countries’, World Development 12, pp. 879–900.CrossRefGoogle Scholar
  14. Mayer, W. (1991) ‘Endogenous labour supply in international trade theory’, Journal of International Economics, 30, pp. 105–120.CrossRefGoogle Scholar
  15. Michael, M. S. (1994) ‘The welfare and employment effects of trade and factor taxes with variable supply’, Journal of International Trade and Economic Development 3, pp. 177–192.CrossRefGoogle Scholar
  16. Neary, P. J. (1985) ‘International factor mobility, minimum wage rates, and factor-price equalization: a synthesis’, Quarterly Journal of Economics 100, pp. 551–570.CrossRefGoogle Scholar
  17. Ohlin, B. (1929) ‘The reparation problem: a discussion’, Economic Journal 39, pp. 172–183.CrossRefGoogle Scholar
  18. Schweinberger, A. G. (1990) ‘On the welfare effects of tied aid’, International Economic Review 31, pp. 457–462.CrossRefGoogle Scholar
  19. Turunen-Red, A. H., and Woodland, A. D. (1988) ‘On the multilateral transfer problem: existence of Pareto improving international transfers’, Journal of International Economics 22, pp. 57–64.Google Scholar

Copyright information

© International Economics Study Group 1997

Authors and Affiliations

  • Sajal Lahiri
  • Pascalis Raimondos-Møller

There are no affiliations available

Personalised recommendations