The Impact of Aid on the Fiscal Behaviour of Governments in Transition Economies


Erden L., Guven A.

EKONOMICKY CASOPIS, vol.57, no.5, pp.445-457, 2009 (Peer-Reviewed Journal) identifier identifier

  • Publication Type: Article / Article
  • Volume: 57 Issue: 5
  • Publication Date: 2009
  • Journal Name: EKONOMICKY CASOPIS
  • Journal Indexes: Social Sciences Citation Index, Scopus
  • Page Numbers: pp.445-457
  • Keywords: foreign aid, fiscal response, transition economies, dynamic panel, FOREIGN-AID, PANEL-DATA, DEVELOPING-COUNTRIES, INVESTMENT

Abstract

This study contributes to the aid-effectiveness literature by applying a fiscal response model to a panel of 24 transition nations over the periods 1990 - 2005. The study employs various dynamic panel estimation methods in an effort to analyze the impact of foreign aid on governments' fiscal behaviour; that is, government investment, government consumption, public revenue creation and borrowing activities. The findings shed some light on the aid-growth nexus, indicating that aid promotes government investment while does not influence government consumption behaviour. Further, there appears to be a positive association between aid and public borrowing, which can be detrimental to the growth process in transition economies.