Foreign aid, domestic investment and welfare

Djajić, S., Lahiri, S., & Raimondos-Møller, Pascalis (1999) Foreign aid, domestic investment and welfare. The Economic Journal, 109(458), pp. 698-707.

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This paper examines the welfare implications of temporary foreign aid in a simple two-period, two-country model of trade. Domestic investment is endogenous, providing an important link between aid in period one and the terms of trade in periods one and two. Transfer-induced changes in the terms of trade redistribute present and future income between the donor and the recipient. In the presence of barriers to international borrowing and lending, such redistribution gives rise to the possibility of temporary aid being both potentially and strictly Pareto improving.

Impact and interest:

18 citations in Scopus
12 citations in Web of Science®
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ID Code: 94019
Item Type: Journal Article
Refereed: Yes
DOI: 10.1111/1468-0297.00469
ISSN: 0013-0133
Deposited On: 23 Mar 2016 01:37
Last Modified: 23 Mar 2016 01:37

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