Aid, the Real Exchange Rate and Why Policy Matters: The Cases of Morocco and Tunisia

Authors

Tony Addison, United Nations University World Institute for Development Economics Research
Mina Baliamoune-Lutz, University of North FloridaFollow

Document Type

Article

Publication Date

7-3-2017

Abstract

Every form of foreign-exchange inflow, including aid, can potentially cause real-exchange rate appreciation, with adverse consequences for the production of tradables (‘Dutch Disease’). Whether it does so depends on the policy response to the inflow. This paper investigates the issue for Morocco and Tunisia, over 1980–2009. We find that aid led to a real appreciation in Morocco, but had no effect on Tunisia’s real exchange rate. This confirms the importance of the macroeconomic framework in which aid is provided, and the key role for infrastructure and other supply-side improvements in determining the final real-economy impact of aid and other inflows.

Publication Title

Journal of Development Studies

Volume

53

Issue

7

First Page

1104

Last Page

1121

Digital Object Identifier (DOI)

10.1080/00220388.2017.1303673

ISSN

00220388

E-ISSN

17439140

Citation Information

Addison, & Baliamoune-Lutz, M. (2017). Aid, the Real Exchange Rate and Why Policy Matters: The Cases of Morocco and Tunisia. The Journal of Development Studies, 53(7), 1104–1121. https://doi.org/10.1080/00220388.2017.1303673