DP88 Aid, Export Promotion and the Real Exchange Rate: An African Dilemma?

Author(s):	Sweder van Wijnbergen
Publication Date:	December 1985
Keyword(s):	Africa, Development Aid, Export Performance, Real Exchange Rate Appreciation, Traded and Non-Traded Goods
JEL(s):	121, 431, 443
Programme Areas:	International Trade and Regional Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=88

Africa, while a major aid recipient, has had disappointing export performance. This paper argues for a causal link: aid, by being partially spent on non-traded goods, leads to real appreciation and reduced export competitiveness. I demonstrate the importance of this effect by presenting econometric evidence on the positive relation between aid flows and real exchange rate appreciation and increases in the real wage in the traded-goods sector. Policy implications are discussed.