TY  - JOUR
AU  - Casella,Alessandra
AU  - Eichengreen,Barry
TI  - Can Foreign Aid Accelerate Stabilization?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4694
PY  - 1994
Y2  - April 1994
UR  - http://www.nber.org/papers/w4694
L1  - http://www.nber.org/papers/w4694.pdf
N1  - Author contact info:
Alessandra Casella
Department of Economics
Columbia University
420 West 118 Street
New York, NY 10027
Tel: 212/854-2459
Fax: 212/854-8059
E-Mail: ac186@columbia.edu

Barry Eichengreen
Department of Economics
University of California, Berkeley
549 Evans Hall 3880
Berkeley, CA 94720-3880
Tel: 510/642-2772
Fax: 510/643-0926
E-Mail: eichengr@econ.Berkeley.edu
AB  - This paper studies the effect of foreign aid on economic stabilization.  Following Alesina and Drazen (1991), we model the delay in stabilizing as the result of a distributional struggle: reforms are postponed because they are costly and each distributional faction hopes to reduce its share of the cost by outlasting its opponents in obstructing the required policies.  Since the delay is used to signal each faction's strength, the effect of the transfer depends on the role it plays in the release of information.  We show that this role depends on the timing of the transfer: foreign aid decided and transferred sufficiently early into the game leads to earlier stabilization; but aid decided or transferred too late is destabilizing and encourages further postponement of reforms.
ER  -