Aid, nontraded goods, and the transfer paradox in small countries
Article Abstract:
A theoretical model of transfer paradox for a small open economy with a nontraded goods sector is presented. It implies that the expansion of this sector can affect the domestic price of nontraded goods in a way that it offsets the otherwise beneficial impact of foreign aid and, under certain conditions, creates a small-country transfer paradox. Its validity is tested by applying it to economic data gathered from 44 small aid-dependent countries from 1970-1990. The results support the model and indicate that the nontraded goods expansion effect is a more plausible source of the transfer paradox than Johnson's tariff-distorting export-displacement effect.
Publication Name: American Economic Review
Subject: Economics
ISSN: 0002-8282
Year: 1999
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Political and institutional commitment to a common currency
Article Abstract:
Political concerns are the primary factor in monetary arrangements. Compared to a currency area, a currency union has a much stronger institutional and political obligation to decide on exchange rates by means of a standard currency for a group of countries. The institutional structure that supports the union has a single monetary authority for all the member nations. This authority determines the monetary policy for the union. A currency union also has a stronger obligation to the membership of the group.
Publication Name: American Economic Review
Subject: Economics
ISSN: 0002-8282
Year: 1997
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