Resource title

Agglomeration and aid

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Resource description

A key issue in development economics is the explanation of core-periphery patterns around the world. Combining this issue with that of analyzing unilateral transfers (e.g. foreign aid) points in the direction of the use of New Economic Geography (NEG) models which, so far, has not been done explicitly. This paper tries to fill this gap in the literature by studying the (possibly catastrophic ) effects of aid around the so-called break-points and sustain-points in a NEG model. We also analyze the effects of a bystander , that is a country which is not directly involved in the transfer. In the traditional transfer literature a bystander is known to potentially cause transfer paradoxes. Our findings in this NEG setting are as follows. First, direct transfer paradoxes are not possible in a symmetric setting even if a bystander is present. Second, the effects of foreign aid depend on the level of economic integration between donor and recipient. Third, if the equilibrium from which aid is given is stable, aid only has a temporary effect (even if there is a bystander present). Fourth, if the donor is relatively large, not only the recipient but also the bystander benefits from foreign aid.

Resource author

Steven Brakman, Harry Garretsen, Charles van Marrewijk

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/25795

Resource license

Adapt according to the presented license agreement and reference the original author.