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Foreign aid, wage inequality and welfare for a small open economy with tourism

Chao, Chi-Chur, Laffargue, Jean-Pierre and Sgro, Pasquale 2010, Foreign aid, wage inequality and welfare for a small open economy with tourism, Review of international economics, vol. 18, no. 3, pp. 454-464.

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Title Foreign aid, wage inequality and welfare for a small open economy with tourism
Author(s) Chao, Chi-Chur
Laffargue, Jean-Pierre
Sgro, Pasquale
Journal name Review of international economics
Volume number 18
Issue number 3
Start page 454
End page 464
Total pages 11
Publisher Wiley-Blackwell Publishing Ltd.
Place of publication Oxford, England
Publication date 2010-08
ISSN 1467-9396
0965-7576
Summary While the welfare effect of foreign aid has been extensively analyzed, the impact on the distribution of income has received less attention. At the same time, there has been recent work on tourism where it is complementary to aid in improving welfare.By combining these two strands, this paper concentrates on wage inequality in developing countries.We find that an increase in aid in the form of tied aid can lower the relative price of nontraded goods. The rent extracted from tourists declines, reducing welfare of domestic residents. In addition, the fall in the nontradable price can widen the wage inequality between skilled and unskilled workers.Thus, increased foreign aid may have detrimental effects on national welfare and the distribution of income. Rising wage inequality is confirmed by numerical simulations.
Notes Article first published online: 15 JUL 2010
Language eng
Field of Research 140219 Welfare Economics
Socio Economic Objective 970114 Expanding Knowledge in Economics
HERDC Research category C1 Refereed article in a scholarly journal
HERDC collection year 2010
Copyright notice ©2010, Blackwell Publishing Ltd
Persistent URL http://hdl.handle.net/10536/DRO/DU:30029935

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