Commodity aid, borrowing and employment in a small open economy
Abstract (Summary)The thesis consists of three essays that examine how a smd open economy responds to international transfers in the fom of commodity aid and borrowing. The fbst essay develops a model to examine the effects of food aid on labor employment, food security and aggregate welfare in recipient codes. The model suggests that when firrns pay efficiency wages to induce effort, the eEects of food aid on labor employment, food secu- rity and aggregate welfare depend on the method of disbursement. In particular, it shows that wheo food aid is used to finance infkastructure development (project food aid) it has no labor disincentive effects in the food industry and increases food security. However. when food aid is distributed to consumers kee of charge (non-project food aid) the model predicts that such aid creates labor disincentive effects in the food industry and decreases food security. Under both rnethods of distribution, the effect of food aid on aggregate welfare is ambiguous. The second essay tests the predictions of the model in the Eirst essay using pooled time-series and cross-section data for eleven developing countries, span- ning the period 19761993. Results ikom this empirical study provide some support for the proposition that project food aid increases food security while non-project food aid decreases food security. The third essay develops a model that provides an explanation for the observation that the unemployment rate and the export-GNP ratio are positively correlated with external indebtedness across developing countries. The central idea of this essay is that international bo~~owing affects unemployment and specialization patterns by unevenly changing the risk-sharing structure across sectors between hm and workers.
Source Type:Master's Thesis
Date of Publication:01/01/1997