Foreign Aid, the Real Exchange Rate, and Economic Growth in the Aftermath of Civil Wars

Elbadawi, Ibrahim Ahmed; Kaltani, Linda; Schmidt-Hebbel, Klaus

dc.creator	Elbadawi, Ibrahim Ahmed
dc.creator	Kaltani, Linda
dc.creator	Schmidt-Hebbel, Klaus
dc.date	2012-03-30T07:12:36Z
dc.date	2012-03-30T07:12:36Z
dc.date	2008-01-30
dc.date.accessioned	2023-02-18T19:41:06Z
dc.date.available	2023-02-18T19:41:06Z
dc.identifier	World Bank Economic Review
dc.identifier	1564-698X
dc.identifier	http://hdl.handle.net/10986/4474
dc.identifier.uri	http://localhost:8080/xmlui/handle/CUHPOERS/249959
dc.description	Foreign aid, the real exchange rate (RER), and economic growth are three key variables that shape the aftermath of civil wars in many developing countries. Panel estimations drawn from a sample of 39 conflict and 44 nonconflict countries between 1970 and 2004 indicate that although postconflict countries receive larger aid flows and exhibit moderate RER overvaluation after peace is attained, overvaluation cannot be traced to aid. Yet foreign aid is among the significant determinants of the equilibrium RER. Aid is also an important determinant of economic growth, particularly after peace is reached. Aid exhibits decreasing returns, however, and interacts negatively with RER overvaluation. RER overvaluation reduces growth, but this effect is ameliorated by financial development. Postconflict policies should therefore aim to use aid prudently, avoid RER misalignment, and support financial and capital market development to achieve high and stable growth in the aftermath of war and beyond.
dc.publisher	World Bank
dc.rights	CC BY-NC-ND 3.0 IGO
dc.rights	http://creativecommons.org/licenses/by-nc-nd/3.0/igo
dc.rights	World Bank
dc.subject	adverse effect
dc.subject	competitiveness
dc.subject	currency assets
dc.subject	Development Economics
dc.subject	Economic Growth
dc.subject	Economic Research
dc.subject	Economics Research
dc.subject	equilibrium
dc.subject	export growth
dc.subject	overvaluation
dc.title	Foreign Aid, the Real Exchange Rate, and Economic Growth in the Aftermath of Civil Wars
dc.type	Journal Article
dc.type	Journal Article
dc.coverage	Africa
dc.coverage	Netherlands Antilles
dc.coverage	Chile
dc.coverage	Congo, Republic of