Tanzania: Foreign Aid and Domestic Savings in the Absence of Expenditure Switching Mechanisms
G. D. Mjema* (Senior Research Fellow and Director, Economic Research Bureau, UDSM)
Download Article | Published On 01/07/2003


The macroeconomic effects of foreign aid on the development of a recipient, mainly Less Developed Countries, (LDCs) has been analyzed in terms of the Harrod-Domar model. Accordingg to this model and its subsequent revisions the rate of growth of output (g) is equal to the savings rate (s) divided by the incremental capital-output ratio (k). Thus: g=s/k................................. (1). This paper revisits the foreign aid savings debate in the light of omitted variables like per capita income which could explain the (negative) relationship between aid and savings

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