Aid, nontraded goods, and the transfer paradox in small countries

Article Abstract:

A theoretical model of transfer paradox for a small open economy with a nontraded goods sector is presented. It implies that the expansion of this sector can affect the domestic price of nontraded goods in a way that it offsets the otherwise beneficial impact of foreign aid and, under certain conditions, creates a small-country transfer paradox. Its validity is tested by applying it to economic data gathered from 44 small aid-dependent countries from 1970-1990. The results support the model and indicate that the nontraded goods expansion effect is a more plausible source of the transfer paradox than Johnson's tariff-distorting export-displacement effect.

Economic aspects, Free trade, Imports, States, Small, Small countries

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Political and institutional commitment to a common currency

Article Abstract:

Political concerns are the primary factor in monetary arrangements. Compared to a currency area, a currency union has a much stronger institutional and political obligation to decide on exchange rates by means of a standard currency for a group of countries. The institutional structure that supports the union has a single monetary authority for all the member nations. This authority determines the monetary policy for the union. A currency union also has a stronger obligation to the membership of the group.

Monetary unions, European Monetary System

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