On the Potential of Foreign Aid as Insurance

Abstract

D eveloping countries are subject to strong macroeconomic shocks. Excluding countries affected by civil wars, the percentage volatility of per capita consumption has typically been two to six times greater in these countries than in industrialized countries over the past three decades. Figure 1 provides a vivid illustration of this fact, by plotting the cyclical component of consumption in several African countries against its counterpart in the United States between 1970 and *Stéphane

Volatility of Development Aid: From the Frying Pan into the Fire?

“…Pallage, Robe, and Bérubé (2005) argue that smoothing out the business cycle in low-income countries could be a major contribution of aid. 10 Thus, this aid definition is broader than that used in section IV.A.…”