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Foreign aid, wage inequality and welfare for a small open economy with tourism
journal contribution
posted on 2010-08-01, 00:00 authored by Chi-Chur Chao, J P Laffargue, Pasquale SgroPasquale SgroWhile 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.
History
Journal
Review of international economicsVolume
18Issue
3Pagination
454 - 464Publisher
Wiley-Blackwell Publishing Ltd.Location
Oxford, EnglandPublisher DOI
ISSN
1467-9396eISSN
0965-7576Language
engNotes
Article first published online: 15 JUL 2010Publication classification
C1 Refereed article in a scholarly journalCopyright notice
2010, Blackwell Publishing LtdUsage metrics
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