July 1, 2008 Thesis Open Access

ADDIS YIMER G/EGZIABHEAR

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{
  "DOI": "10.20372/nadre:3063", 
  "author": [
    {
      "family": "ADDIS YIMER G/EGZIABHEAR"
    }
  ], 
  "issued": {
    "date-parts": [
      [
        2008, 
        7, 
        1
      ]
    ]
  }, 
  "abstract": "<p>The main objective of this study is to access the fiscal response to external aid inflows in Ethiopia, specifically<br>\nto study the impact of foreign aid inflows on public expenditure, revenue and domestic borrowing in Ethiopia.<br>\nThe paper provides a critical review of literature on the aid-fiscal relation, and then applies a VAR/VECM<br>\nand impulse response analysis, using data for the period 1961-2007.The study is a good indication that<br>\ndisaggregated data utilization could point out which variables are responsive to changes in external shocks. By<br>\nstudying the particular fiscal dynamics in Ethiopia using three separate models, the study finds that foreign aid<br>\nin the form of grant and loan has had a positive impact on government expenditure (loan being pro-investment<br>\nand grant being pro-consumption), both have a negative impact on domestic borrowing (domestic borrowing<br>\nbeing more elastic to a change in grant) and indirect tax collection and no effect on the direct one. Moreover, by<br>\nincorporating total ODA inflow in a separate model, the study tried to analyze the joint impact of budgetary<br>\ngrant and loan, and that of off -budgetary ODA. The results support the conclusion that aid inflows increase<br>\npublic expenditure and are biased to be pro- investment. While total ODA flows have a negative impact on<br>\nrevenue of the government and borrowing from domestic sources, suggesting that aid and domestic borrowing are<br>\nclose substitutes and that higher aid flows displace domestic revenues. In the final analysis to mitigate the<br>\nundesirable impacts of aid, building a better national capacity to collect domestic revenue and regulatory<br>\nschemes by donors to avoid possible problems of aid fungiblity should be put in place</p>", 
  "title": "\"THE FISCAL RESPONSE TO EXTERNAL AID: A VECTOR AUTOREGRESSIVE ANALYSIS (VAR) FOR ETHIOPIA\"", 
  "type": "thesis", 
  "id": "3063"
}