Does Foreign Aid Cause "Dutch Disease"?: Case of Cambodia, Lao PDR, Myanmar and Vietnam

Ni Lar; Hiroyuki Taguchi; Hiroaki Sakurai

doi:10.6000/1929-7092.2016.05.16

Authors

Ni Lar JSPS Research Fellow
Hiroyuki Taguchi Saitama University
Hiroaki Sakurai Saitama University

DOI:

https://doi.org/10.6000/1929-7092.2016.05.16

Keywords:

Foreign Aid, Dutch Disease, CLMV, ODA, Tradables and Non-Tradables, Capital Accumulation

Abstract

This paper examined the economic impacts of foreign aid from the Dutch-Disease perspective, focusing on the economies of Cambodia, Lao PDR, Myanmar and Vietnam (so-called CLMV). The CLMV were targeted in this study since they have rarely been studied in the literature in this field although their economies have still depended highly on foreign aid. We found no evidence that they have suffered from the Dutch Disease, or rather identified a positive production effect of foreign aid. We speculate that the major use of foreign aid in the CLMV has focused on economic infrastructure, which has given little room for raising consumption and contributed directly to capital accumulation there.

References

Adam, C.S. 2006. Aid and the Supply Side: Public Investment, Export Performance, and Dutch Disease in Low-Income Countries. World Bank Economic Review, 20(2): 261-290.
http://dx.doi.org/10.1093/wber/lhj011
Asteriou, D. 2009. Foreign aid and economic growth: New evidence from a panel data approach for five South Asian countries. Journal of Policy Modeling, 31(1): 155–161.
http://dx.doi.org/10.1016/j.jpolmod.2008.04.012
Bobba, M. and Powell, A. 2007. Aid and growth: Politics matters. Inter-American Development Bank Working Paper, No. 601, Washington, DC.
Boone, P. 1996. Politics and the effectiveness of foreign aid. European Economic Review, 40(2): 289–329.
http://dx.doi.org/10.1016/0014-2921(95)00127-1
Bourdet, Y. and Falck, H. 2006. Emigrants’ Remittances and Dutch Disease in Cape Verde. International Economic Journal, 20(3):267-284.
http://dx.doi.org/10.1080/10168730600879323
Burnside, C. and Dollar, D. 2000. Aid, policies and growth. American Economic Review, 90(4): 847–869.
http://dx.doi.org/10.1257/aer.90.4.847
Burke, P.J. and Ahmadi-Esfahani, F.Z. 2006. Aid and growth: A study of South East Asia. Journal of Asian Economics, 17(2): 350–362.
http://dx.doi.org/10.1016/j.asieco.2006.02.006
Corden, W.M. and Neary, J.P. 1982. Booming sector and de-industrialisation in a small open economy. Economic Journal, 92: 825–848.
http://dx.doi.org/10.2307/2232670
Dalgaard, C.J., Hansen, H. and Tarp, F. 2004. On the empirics of foreign aid and growth. Economic Journal, 114(496): 191–216.
http://dx.doi.org/10.1111/j.1468-0297.2004.00219.x
Easterly, W. 2005. What did structural adjustment adjust? The association of policies and growth with repeated IMF and World Bank adjustment loans. Journal of Development Economics, 76(1): 1–22.
http://dx.doi.org/10.1016/s0304-3878(04)00087-2
Fielding, D. and Gibson, F. 2012. Aid and Dutch Disease in Sub-Saharan Africa. Journal of African Economies.
http://dx.doi.org/10.1093/jae/ejs013
Gong, L. and Zou, H. 2001. Foreign aid reduces labor supply and capital accumulation. Review of Development Economics, 5(1): 105-118.
http://dx.doi.org/10.1111/1467-9361.00110
Granger, C.W. J. 1969. Investigating causal relations by econometric models and cross-spectral methods. Econometrica, 37: 1969.
http://dx.doi.org/10.2307/1912791
Griffin, K.B. 1970. Foreign Capital, Domestic Savings and Economic Development. Oxford Bulletin of Economics and Statistics, 32: 99-112.
http://dx.doi.org/10.1111/j.1468-0084.1970.mp32002002.x
Hansen, H. and Tarp, F. 2001. Aid and growth regressions. Journal of Development Economics, 64(2): 547–570.
http://dx.doi.org/10.1016/S0304-3878(00)00150-4
Kourtellosa, A., Tanb, C.M. and Zhang, X. 2007. Is the relationship between aid and economic growth nonlinear? Journal of Macroeconomics, 29(3): 515–540.
http://dx.doi.org/10.1016/j.jmacro.2007.02.007
Lartey, E.K.K., Mandelman, F.S. and Acosta, P.A. 2012. Remittances, Exchange Rate Regimes and the Ditch Disease: A Panel Data Analysis. Review of International Economics, 20(2): 377-395.
http://dx.doi.org/10.1111/j.1467-9396.2012.01028.x
Levin, A., Lin, C.F. and Chu, C. 2002. Unit root tests in panel data: Asymptotic and finite-sample properties. Journal of Econometrics, 108: 1–24.
http://dx.doi.org/10.1016/S0304-4076(01)00098-7
Minoiu, C. and Reddy, S. 2010. Development aid and economic growth: A positive long-run relation. The Quarterly Review of Economics and Finance, 50: 27-39.
http://dx.doi.org/10.1016/j.qref.2009.10.004
Rajan, R.G. and Subramanian, A. 2011. Aid, Dutch disease, and manufacturing growth. Journal of Development Economics, 94(1): 106–118.
http://dx.doi.org/10.1016/j.jdeveco.2009.12.004
Tekin, R.B. 2012. Development aid, openness to trade and economic growth in Least Developed Countries: bootstrap panel Granger causality analysis. Procedia – Social and Behavioral Sciences 62: 716-721.
http://dx.doi.org/10.1016/j.sbspro.2012.09.121
UNCTAD (United Nations Conference on Trade and Development), 2011. Programme of Action for the Least Developed Countries for the Decade 2011-2020, presented in the Fourth United Nations Conference on the Least Developed Countries on 23 May 2011.