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Aid and the real exchange rate: Dutch disease effects in African countries

  • Development Strategy
  • Published:
Intereconomics

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Abstract

There is little evidence to show that official development assistance to sub-Saharan African countries has led to significant improvements of macroeconomic indicators such as export performance. Using four CFA zone countries (Burkina Faso, Côte d'lvoire, Senegal and Togo) as case studies, this article analyses the relationship between aid inflows and the real exchange rate with a view to identifying symptoms of “Dutch disease” in these economies.

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References

  1. See Peter Boone: The Impact of Foreign Aid on Savings and Growth, London 1994.

  2. Sebastian van Wijnbergen: Aid, Export Promotion and the Real Exchange Rate: An African Dilemma, London 1986.

  3. For the following, see Sebastian van Wijnbergen, op. cit. Aid, Export Promotion and the Real Exchange Rate: An African Dilemma, London 1986.

  4. See W. E. G. Salter: Internal and External Balance: The Role of Price and Expenditure Effects, in: Economic Record, 35, August 1959, pp 226–238.

  5. See Howard White: The Macroeconomic Impact of Development Aid: A Critical Survey, in: The Journal of Development Studies, Vol. 28, No 1, pp. 163–240. White refers to only two studies that have centred on empirically testing the aid-RER relationship, namely van Wijnbergen, op. cit., Aid, Export Promotion and the Real Exchange Rate: An African Dilemma, London 1986. and Howard White, Ganeshan Wignaraja: Nominal and Real Devaluation During Trade Liberalisation— Aid-Induced Dutch Disease in Sri Lanka, Development Studies Working Papers, Centro Studi Luca d'Agluano, International Development Centre, University of Oxford, Torino 1991.

  6. The REER data used in the equation came from Lawrence Bouton, Christine Jones, Miguel Kiguel: Macroeconomic Reforms and Growth in Africa: Adjustment in Africa Revisited, Macroeconomics and Growth Division, Policy Research Department, The World Bank, Washington D.C. 1994.

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  7. See Howard White, op. cit., The Macroeconomic Impact of Development Aid: A Critical Survey, in: The Journal of Development Studies, Vol. 28, No 1, pp. 163–240.

  8. See IMF Staff Country Report—Burkina Faso, No. 96/5, International Monetary Fund, Washington D.C. 1996, p. 1.

  9. See e.g. the Economist Intelligence Unit Country Profile 1992–93—Burkina Faso, The Economist Group, London 1992, p. 35.

  10. World Bank data.

  11. See IMF Staff Country Report, loc. cit., Burkina Faso, No. 96/5, International Monetary Fund, Washington D.C. 1996, p. 1, chart 1, which is based on data provided by the Burkinese authorities and Fund estimates.

  12. See EIU, op. cit., the Economist Intelligence Unit Country Profile 1992–93— Burkina Faso, The Economist Group, London 1992, p. 50.

  13. EIU Country Report, 3rd quarter 1997, London 1997.

  14. See EIU Country Report, 3rd quarter 1997, London 1997, p. 23.

  15. Ibid. EIU Country Report, 3rd quarter 1997, London 1997, p. 14.

  16. Calculations based on World Bank data.

  17. IMF Staff Country Report No. 96/6, p. 13.

  18. Ibid, IMF Staff Country Report No. 96/6, p. 19.

  19. See Lawrence Bouton et al., op. cit., Christine Jones, Miguel Kiguel: Macroeconomic Reforms and Growth in Africa: Adjustment in Africa Revisited, Macroeconomics and Growth Division, Policy Research Department, The World Bank, Washington D.C. 1994, Table 5.

  20. See EIU Country Profile 97/98, p. 14.

  21. EIU Country Profile 97/98, p. 4.

  22. EIU Country Prfile 1995–96, p. 10.

  23. Ibid. EIU Country Profile 1995–96, p. 10.

  24. Ibid. EIU Country Profile 1995–96, p. 10.

  25. World Bank data.

  26. See World Bank: Senegal—Country Memorandum, op. cit., p. 53.

  27. Ibid. See World Bank: Senegal—Country Memorandum, op. cit., 54.

  28. Ibid. See World Bank: Senegal—Country Memorandum, op. cit., 53.

  29. EIU Country Profile 1995/96, p. 33.

  30. Ibid, EIU Country Profile 1995/96, p. 35.

  31. See IMF Staff Country Report No. 97/13, 1997, Table 1 in Appendix I.

  32. World Bank Data 1994.

  33. Ibid. World Bank Data 1994.

  34. World Development Indicators 1997.

  35. From 139.2 in 1985 to 100 in 1987. Compare World Bank 1997.

  36. Calculations based on World Bank Data 1997.

  37. Ibid. Calculations based on World Bank Data 1997.

  38. World Bank 1997.

  39. For a breakdown of the debt see EIU Country Profile 1996–97, p. 21.

  40. See Jan Willem Gunning: The Donor's Role in Africa: Reform of Aid and Trade Relationships, paper presented at the Third Annual Workshop of the Network EU-LDC Trade and Capital Relations, Rotterdam, May 14–16, 1996.

  41. See Paul Mosley: The Failure of Aid and Adjustment Policies in Sub-Saharan Africa: Counter-examples and Policy Proposals, in: Journal of African Economies, Vol. 5, No. 3, 1996, pp. 406–443.

  42. Jan Willem Gunning, op. cit., The Donor's Role in Africa: Reform of Aid and Trade Relationships, paper presented at the Third Annual Workshop of the Network EU-LDC Trade and Capital Relations, Rotterdam, May 14–16, 1996, p. 4.

  43. For a more detailed discussion, see Jan Willem Gunning, op. cit., The Donor's Role in Africa: Reform of Aid and Trade Relationships, paper presented at the Third Annual Workshop of the Network EU-LDC Trade and Capital Relations, Rotterdam, May 14–16, 1996.

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Authors and Affiliations

  1. Cologne, Germany

    Isabell Adenauer

  2. Philadelphia, USA

    Laurence Vagassky

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  1. Isabell Adenauer
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Adenauer, I., Vagassky, L. Aid and the real exchange rate: Dutch disease effects in African countries. Intereconomics 33, 177–185 (1998). https://doi.org/10.1007/BF02929511

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  • DOI: https://doi.org/10.1007/BF02929511

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