Post-Conflict Aid, Real Exchange Rate Adjustment, and Catch-up Growth
Post-conflict countries receive substantial aid flows after the start of peace. While post-conflict countries' capacity to absorb aid (that is, the quality of their policies and institutions) is built up only gradually after the onset of peace...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2012
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2007/04/7524376/post-conflict-aid-real-exchange-rate-adjustment-catch-up-growth http://hdl.handle.net/10986/7035 |
| Summary: | Post-conflict countries receive
substantial aid flows after the start of peace. While
post-conflict countries' capacity to absorb aid (that
is, the quality of their policies and institutions) is built
up only gradually after the onset of peace, the evidence
suggests that aid tends to peak immediately after peace is
attained and decline thereafter. Aid composition broadly
reflects post-conflict priorities, with large parts of aid
financing social expenditure and infrastructure investment.
Aid has significant short-term effects on the real exchange
rate (RER), as inferred from the behavior of RER in the
world. While moderate RER overvaluation is observed in
post-conflicts, it cannot be traced down to the aid flows.
The empirical evidence on world growth reveals new findings
about the pattern of catch-up growth during post-conflicts
and the role of key growth determinants on post-conflict
growth. Aid is an important determinant of growth, both
generally and more strongly during post-conflict periods.
Because RER misalignment reduces growth, RER overvaluation
during post-conflicts reduces catch-up growth. Aid and RER
overvaluation combined also lower growth. But the negative
growth effect of RER overvaluation declines with financial development. |
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