Aid and the Dutch Disease in Low-Income Countries: Informed Diagnoses for Prudent Prognoses

Mwanza Nkusu

No 2004/049, IMF Working Papers from International Monetary Fund

Abstract: This paper demonstrates that the Dutch disease need not materialize in low-income countries that can draw on their idle productive capacity to satisfy the aid-induced increased demand. Diagnoses on, and prognoses for, the Dutch disease should take into account country-specific circumstances to avoid ill-advised policies. The paper emphasizes that using public resources inefficiently can be more painful than real exchange rate appreciations, which may not necessarily embody the Dutch disease.

Keywords: WP; Dutch disease model; appreciation; ODA; RER; Foreign Aid; Exchange Rate; Economic Growth; and Poverty; ODA flow; RER appreciation; Dutch disease-type effect; core Dutch disease theory; core Dutch disease framework; Dutch disease economics; ODA inflow; Dutch disease; Aid flows; Trade balance; Exports; Human capital; Sub-Saharan Africa (search for similar items in EconPapers)
Pages: 19
Date: 2004-03-01
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Citations: View citations in EconPapers (49)

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