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Community development --- Marginal productivity --- Social Sciences and Humanities. Development Studies --- Sociology, Rural --- Development Sociology. --- North Atlantic Region --- Economic conditions

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Devarajan, Go, Page, Robinson, and Thierfelder argued that if aid is about the future and recipients are able to plan consumption and investment decisions optimally over time, then the potential problem of an aid-induced appreciation of the real exchange rate (Dutch disease) does not occur. In their paper, "Aid, Growth and Real Exchange Rate Dynamics," this key result is derived without requiring extreme assumptions or additional productivity story. The economic framework is a standard neoclassical growth model, based on the familiar Salter-Swan characterization of an open economy, with full dynamic savings and investment decisions. It does require that the model is fully dynamic in both savings and investment decisions. An important assumption is that aid should be predictable for intertemporal smoothing to take place. If aid volatility forces recipients to be constrained and myopic, Dutch disease problems become an issue.

Currencies and Exchange Rates --- Debt --- Debt Markets --- Economic Theory and Research --- Emerging Markets --- Equilibrium --- Extreme Poverty --- Finance and Financial Sector Development --- Incentive Effects --- Macroeconomic Management --- Macroeconomics and Economic Growth --- Marginal Productivity --- Open Economy --- Private Sector Development --- Productivity --- Savings --- Side Effects

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Of the major kinds of physical infrastructure, electricity generating capacity has roughly the same marginal productivity as physical capital as a whole. So have roads-plus-rail, globally and in lower-income countries. Telephones, however, and transport routes in higher-income countries, have higher marginal productivity than other kinds of capital; Using panel data for a cross-section of countries, Canning estimates an aggregate production function that includes infrastructure capital. He finds that: The productivity of physical and human capital is close to the levels suggested by microeconomic evidence on their private returns; Electricity generating capacity and transportation networks have roughly the same marginal productivity as capital as a whole; Telephone networks appear to show higher marginal productivity than other types of capital. Panel data cointegration methods used in estimation take account of the nonstationary nature of the data, are robust to reverse causation, and allow for different levels of productivity and different short-run business-cycle and multiplier relationships across countries. This paper - a product of Public Economics, Development Research Group - is part of a larger effort in the group to study the impact of public expenditures. The study was funded by the Bank's Research Support Budget under the research project Infrastructure and Growth: A Multicountry Panel Study (RPO 680-89). The author may be contacted at d.canning@qub.ac.uk.

Capital --- Economic Growth --- Economic Theory and Research --- Externalities --- Externality --- Human Capital --- Income --- Income Levels --- Inputs --- Investment --- Labor Policies --- Macroeconomics and Economic Growth --- Marginal Productivity --- Marginal Products --- Outcomes --- Prices --- Production --- Production Function --- Productivity --- Social Protections and Labor --- Taxation --- Telecommunications --- Theory --- Total Factor Productivity --- Transport --- Transport Economics, Policy and Planning --- Variables