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We are pleased to announce the publication of IPC Working Paper #41, “The Impact of Foreign Aid on Government Spending, Revenue and Domestic Borrowing in Ethiopia”. The author, Pedro M.G. Martins, uses a fiscal-response model to examine the effects of foreign aid to Ethiopia on the fiscal dynamics of the government during 1964-2005. He finds that aid has had a positive impact, in particular, on government investment, with concessional loans having a stronger effect than grants. The effect of aid on current expenditures has been less pronounced. He also finds that foreign aid has tended to substitute for domestic borrowing (the latter being a more expensive option for the government). Most problematic is the finding that foreign aid has tended to displace domestic revenues, although this result is not completely robust across his sample.



Available online at: http://www.undp-povertycentre.org/pub/IPCWorkingPaper41.pdf


For a directly related IPC publication by the same author, see One Pager #43, “The Fiscal Impact of Aid Flows: Evidence from Ethiopia”—as well as an earlier related One Pager #34, “Why Is Africa Constrained from Spending ODA?”.



This Working Paper is part of the ongoing IPC research programme on “Economic Policies, MDGs and Poverty” and is related to the research in Conference Papers #1-4 on “Macroeconomic Policies to Combat HIV/AIDS”.





Other IPC publications at: http://www.undp-povertycentre.org/ipcpublications.htm