Measuring the cost of aid volatility
By Homi Kharas
Executive Summary: Flows of official development assistance (ODA) to recipient countries have been highly volatile and this reduces their value. At macro level, empirical evidence suggests that volatile ODA can negatively impact growth through several channels. At the micro level, volatility can affect fiscal planning and the level and composition of investment. This working paper develops a simple financial metric that policy makers can use to estimate (and reduce) the cost of aid volatility. Unlike other estimates, our measure does not depend on parameter estimates from cross-country regressions, nor on country-specific model simulations.
To read the full article, click here