External Flows and Development in Bolivia

42 Pages Posted: 28 Sep 2013

See all articles by Paola Barrientos Quiroga

Paola Barrientos Quiroga

Aarhus University - School of Business and Social Sciences

Kenneth Petersen

Aarhus University - CREATES

Date Written: August 26, 2013

Abstract

External resources for a low income country have the potential of accelerating growth but also of creating Dutch Disease effects. This paper analyses the empirical impact of the most important external resources, foreign direct investment, aid, and loans, on the Bolivian economy for the period 1950-2009. We use a multivariate CVAR(2) model, which directly deals with endogeneity issues and allows for a more profound insight into the chain of causality, through the impulse responses. Our results indicate that loans are positive for the Bolivian economy in the long run, through an increase in exports and a decrease in purchasing power of exports however, we did not include total debt. We find that the effect of aid is negative for the Bolivian GDP per capita in the long run, which is explained by the temporary increase in purchasing power of exports, which lead to a permanent loss in the exports. Finally, foreign direct investments lead to a positive response of Bolivian GDP per capita and exports, and a reduction of purchasing power of exports in the long run.

Keywords: Capital inflows, Bolivia, Aid, Debt, FDI, Dutch Disease

JEL Classification: O11, F21, F34, F35

Suggested Citation

Barrientos Quiroga, Paola and Petersen, Kenneth, External Flows and Development in Bolivia (August 26, 2013). Available at SSRN: https://ssrn.com/abstract=2331333 or http://dx.doi.org/10.2139/ssrn.2331333

Paola Barrientos Quiroga (Contact Author)

Aarhus University - School of Business and Social Sciences ( email )

Nordre Ringgade 1
Aarhus C, DK-8000
Denmark

Kenneth Petersen

Aarhus University - CREATES ( email )

Nordre Ringgade 1
DK-8000 Aarhus C, 8000
Denmark

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