Aid and exchange rates in sub-Saharan Africa: No more Dutch Disease?

Given the significant inflows of foreign aid to sub-Saharan Africa (SSA) the possibility of Dutch Disease has been a concern. Most macroeconomic models predict that aid inflows, especially if large and/or unanticipated (shocks), will lead to an appreciation of the real exchange rate and undermine the competitiveness of the economy. Oliver Morrissey suggests that for the majority of countries aid has no or a minimal effect on the real exchange rate.

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