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School of Business, Örebro University Working Papers, School of Business, Örebro University

No 2008:3:
Aid-Financed Public Investments and the Dutch Disease: Evidence from Tanzania

Emmanuel E. Asmah () and Jorgen Levin ()

Abstract: In this paper we discuss the impact of scaling-up aid in Tanzania using an economy-wide dynamic CGE model. The major conclusions coming out from this work is that productivity effects matter. If additional aid and consequently increased public spending has a positive impact on productivity this would spur GDP growth and reduce the risk of an appreciating real exchange rate. In a way this resembles previous results in the aid-growth literature that aid has a positive impact on growth in a country with good economic policies assuming that good policies have a positive impact on productivity. Presenting various scenarios on the impact of additional aid a sustained GDP growth rate of around 7 percent would be possible to achieve in a modest scaling-up aid scenario without any significant changes in the real exchange rate.

Keywords: Aid:Dutch:Disease:Tanzania; (follow links to similar papers)

JEL-Codes: F35; O11; O55; (follow links to similar papers)

34 pages, May 14, 2008

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