Modelling the Fiscal Effects of Aid: An Impulse Response Analysis for Ghana

CREDIT Research Paper No. 03/10

43 Pages Posted: 27 Oct 2003

See all articles by Robert Osei

Robert Osei

University of Ghana - Institute of Statistical, Social and Economic Research (ISSER)

Oliver Morrissey

University of Nottingham - Development Economics

Tim Lloyd

University of Nottingham - School of Economics

Date Written: July 2003

Abstract

An important feature of aid to developing countries is that it is given to the government. As a result, aid should be expected to affect fiscal behaviour. Traditional approaches to modelling fiscal effects are beset by theoretical and empirical problems. This paper applies techniques developed in the 'macroeconometrics' literature to estimate the dynamic linkages between aid and fiscal aggregates. Vector autoregressive methods are applied to 34 years of annual data in Ghana to model the effect of aid on fiscal behaviour. Results suggest that aid to Ghana has been associated with reduced domestic borrowing and increased tax effort, combining to increase public spending. The paper provides evidence that aid has been associated with improved fiscal performance in Ghana, implying that the aid has been used sensibly (at least in fiscal terms).

Keywords: Aid, Fungibility, Fiscal Response, Impulse Response

JEL Classification: F35, O23, O55, H60

Suggested Citation

Osei, Robert and Morrissey, Oliver and Lloyd, Tim, Modelling the Fiscal Effects of Aid: An Impulse Response Analysis for Ghana (July 2003). CREDIT Research Paper No. 03/10, Available at SSRN: https://ssrn.com/abstract=456940 or http://dx.doi.org/10.2139/ssrn.456940

Robert Osei

University of Ghana - Institute of Statistical, Social and Economic Research (ISSER)

P.O BOX LG 74
Legon
Ghana

Oliver Morrissey (Contact Author)

University of Nottingham - Development Economics ( email )

University Park
Nottingham, NG8 1BB
United Kingdom
+44 (0)115 9515475 (Phone)
+44 (0)115 951 4159 (Fax)

Tim Lloyd

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom
(0115) 951 5620 (Phone)
(0115) 951 4159 (Fax)

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