Open AccessAid Volatility: Is It a Problem in T uvalu?
Author(s) -
Iulai Letasi
Publication year - 2014
Publication title -
asia and the pacific policy studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.529
H-Index - 14
ISSN - 2050-2680
DOI - 10.1002/app5.30
Subject(s) - volatility (finance) , database transaction , transaction cost , economics , monetary economics , business , finance , computer science , database
Empirical evidence on aid volatility shows that it adversely impacts recipient countries. This study seeks to find if aid volatility matters in T uvalu—a small aid recipient country in the P acific. The study finds that, with a coefficient of variation of 0.49, aid volatility in T uvalu is significant. It is also found that project aid is more volatile than aid that goes to budget support and routine programs such as scholarships. Aid volatility results in incomplete projects, high transaction costs, ‘ D utch disease’ and fiscal planning problems. To manage the adverse impacts of aid volatility, T uvalu needs to strengthen its C onsolidated I nvestment F und to buffer for any disruptions in aid disbursements, provide a sound policy and institutional climate, target aid to budget support and programs instead of specific projects, and implement large infrastructure projects in phases.