Chapter 3 Agglomeration and Aid

Abstract

We combine a key issue in development economics (explaining core-periphery patterns) for the first time with an analysis of unilateral transfers (foreign aid) using a New Economic Geography model. We show that (i) direct transfer paradoxes are not possible in a symmetric setting even if a bystander is present, (ii) the effects of foreign aid depend on the level of economic integration, (iii) aid only has a temporary effect (even if there is a bystander present) if the initial equilibrium is stable, and (iv) the recipient as well as the bystander benefits from foreign aid if the donor is large.

Citation

Brakman, S., Garretsen, H. and Van Marrewijk, C. (2006), "Chapter 3 Agglomeration and Aid", Lahiri, S. (Ed.) Theory and Practice of Foreign Aid (Frontiers of Economics and Globalization, Vol. 1), Emerald Group Publishing Limited, Leeds, pp. 31-53. https://doi.org/10.1016/S1574-8715(06)01003-7