Aid and the Dutch Disease in Low-Income Countries: Informed Diagnoses for Prudent Prognoses

19 Pages Posted: 14 Feb 2006

See all articles by Mwanza Nkusu

Mwanza Nkusu

International Monetary Fund (IMF)

Date Written: March 2004

Abstract

This paper demonstrates that the Dutch disease need not materialize in low-income countries that can draw on their idle productive capacity to satisfy the aid-induced increased demand. Diagnoses on, and prognoses for, the Dutch disease should take into account country-specific circumstances to avoid ill-advised policies. The paper emphasizes that using public resources inefficiently can be more painful than real exchange rate appreciations, which may not necessarily embody the Dutch disease.

Keywords: Foreign Aid, Exchange Rate, Economic Growth, Poverty

JEL Classification: F35, F43, I30, O40

Suggested Citation

Nkusu, Mwanza, Aid and the Dutch Disease in Low-Income Countries: Informed Diagnoses for Prudent Prognoses (March 2004). IMF Working Paper No. 04/, Available at SSRN: https://ssrn.com/abstract=878872

Mwanza Nkusu (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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