UNCERTAINTY OF FOREIGN AID: HOW IT AFFECTS MACROECONOMIC POLICY
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The article presents the results obtained from an econometric analysis of relations between the foreign aid and the quality of economic policies applied by the beneficiary country. Instable foreign transfers may necessitate costly budgetary adjustments and complications in monetary and trade policies planning. Panel data concerning 56 developing countries, covering time span of 1975 -1995 were used. The results reveal that foreign aid positively influences the quality of the applied policies and especially it is evident in the case of multilateral transfers. The effects that are discussed become visible only after specific measures of uncertainty are introduced into the study. Absence of such a variable in other empirical studies impairs their ability to distinguish the positive and the negative results of foreign aid.
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