Aid Inflows and the Real Effective Exchange Rate in Tanzania

Li, Ying ; Rowe, Francis

World Bank, Washington, DC

关键词: ACCUMULATION OF RESERVES;    AGGREGATE DEMAND;    BALANCE OF PAYMENTS;    BALANCE OF PAYMENTS CRISES;    BALANCE OF PAYMENTS CRISIS;   

DOI  :  10.1596/1813-9450-4456
RP-ID  :  WPS4456

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

Tanzania is well placed to receive asignificant increase in aid inflows in coming years. Despitethe potential for the additional aid inflows to raise incomelevels in the country, increasing them may bring aboutstructural changes in the economy that may be unwelcome. Onesuch change is an appreciation of the real exchange ratethat leads to a contraction of traditional export sectorsand a loss of export competitiveness. This paper employs areduced-form equilibrium real exchange rate approach toexplain movements in Tanzania's real effective exchangein recent decades. Particular attention is paid to therelationship between aid inflows and the real effectiveexchange rate. The authors find that the long-run behaviorof the real effective exchange rate is influenced by termsof trade movements, the government's tradeliberalization efforts, and aid inflows. Positiveterms-of-trade movements are associated with anappreciation, periods of improving trade liberalization areassociated with a depreciation, and increases in aid inflowsare associated with a depreciation in the real effectiveexchange rate. Although the last result is non-standard, itis not empirically unique and does have theoreticalunderpinnings. A detailed analysis of this relationship overthe last decade shows that the Bank of Tanzania'sresponse to aid inflows is likely the main reason for the finding.