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Alassane Drabo

Shocks Per Income Group 6. Evolution of Temperature Shocks Per Income Group 7. Correlation Between Absorptive Capacity and Climate Shocks Tables 1. Effect of ODA, FDI and Remittances on Economic Growth 2. Absorptive Capacity Conditional Effect of ODA, FDI and Remittances on Economic Growth 3: Role of Average Climate Shocks on the Effect of ODA, FDI and Remittances on Economic Growth 4. Role of Weighted Average Climate Shocks on the Effect of ODA, FDI and Remittances on Economic Growth Appendix 1: Tables A1. List of Countries A2. Data Sources A3

Alassane Drabo
The three main financial inflows to developing countries have largely increased during the last two decades, despite the large debate in the literature regarding their effects on economic growth which is not yet clear-cut. An emerging literature investigates the dependence of their effects on some country characteristics such as human and physical capital constraint, macroeconomic policy and institutional capacity. This paper extends the literature by arguing that climate shocks may undermine the effect of Foreign Direct Investment (FDI), official development assistance (ODA) and migrants’ remittances on economic expansion. Based on neoclassical growth framework, the theoretical model indicates that FDI, ODA, and remittances improve economic growth, and the size of the effect increases with good absorptive capacity. However, climate shocks reduce this positive effect of financial flows in developing countries. Using a sample of low and middle-income countries from 1995 to 2018, the empirical investigation confirms the theoretical conclusions. Developing countries should build strong resilience to climate change. Actions are also needed at global level to reduce greenhouse gases emissions, and build strong structural resilience to climate shocks especially in developing countries.
Ernesto Crivelli, Mr. Sanjeev Gupta, Ms. Priscilla S Muthoora, and Ms. Dora Benedek

Front Matter Page Fiscal Affairs Department Contents Abstract I. Introduction II. Literature Review III. Methodology and Data A. Empirical Specification B. Estimation C. Data IV. Results V. Concluding Remarks Tables 1. Net ODA Grants and Loans and Total Tax Revenues 2. Effect of Net ODA Grants and Loans on Each Type of Tax Revenue 3. Effect of ODA on Total Tax Revenue by Countries’ Income Level 4. Effect of ODA on Total Tax Revenue by Region 5. Impact of ODA on Total Tax Revenue in Countries with Weak Institutions

Alassane Drabo

statistically significant, suggesting that official development assistance increases the GDP per capita growth rate. Regarding the variables of control, the investment rate and the human capital have the anticipated positive sign even if the latter is not statistically significant. The coefficients of initial GDP and the population growth rate are not statistically significant. The coefficient of trade is statistically significant, but with wrong sign. Table 1. Effect of ODA, FDI and Remittances on Economic Growth (1) (2) (3) GDP per capita

Ernesto Crivelli, Mr. Sanjeev Gupta, Ms. Priscilla S Muthoora, and Ms. Dora Benedek
This paper reexamines the relationship between aid and domestic tax revenues using a more recent and comprehensive dataset covering 118 countries for the period 1980 - 2009. Overall, our results support earlier findings of a negative association between net Official Development Assistance (ODA) and domestic tax revenues, but this relationship appears to have weakened in reflection of greater efforts at mobilizing domestic revenues in many countries. The composition of net ODA matters: ODA grants are associated with lower revenues, while ODA loans are not. The paper further finds that net ODA and grants are negatively associated with VAT, excise and income tax revenues, but have a positive relationship with trade taxes. Aid has a particularly strong negative effect on domestic tax revenues in low-income countries and in countries with relatively weak institutions.
Ernesto Crivelli, Mr. Sanjeev Gupta, Ms. Priscilla S Muthoora, and Ms. Dora Benedek

significant negative effect on the ratio of taxes to GDP. Remmer (2004) uses a broader sample of 120 developing countries over the period 1970–99. She finds a negative relationship between three different measures of aid (aid to GNI, aid to imports, and aid to government expenditure) and changes in tax revenue to GDP. As noted above, Gupta et al. (2004) find similar results. Moreover, they show that the negative effect of ODA grants is stronger in countries with weak institutions. Knack (2009) also finds a robust negative relationship between sovereign rents (from aid

Ernesto Crivelli and Mr. Sanjeev Gupta

at time t = 1,…,L , expressed relative to GDP, in logs; ODA grants, also expressed relative to GDP; and D is a dummy variable for revenue conditionality in IMF programs (equal to 1 if an IMF-supported program with country i includes revenue conditionality in year t-1 and 0 otherwise). X is a vector of controls, and time-specific effects are also included. The lagged dependent variable allows for sluggish tax revenue response. The focus here is primarily on β 2 and β 4 , that is the effect of ODA and the interaction between ODA and revenue conditionality

Ernesto Crivelli and Mr. Sanjeev Gupta
This paper assesses whether conditionality in IMF-supported programs has helped offset the potential negative effect of foreign aid on tax revenues. The analysis—carried out on panel data covering 1993–2012 for 111 low- and middle-income countries—shows that growing use of revenue conditionality by low-income countries partially offsets the depressing effect of foreign grants on tax revenue, particularly on taxes on goods and services. The impact of conditionality is strong in countries where aid dependence is high and where institutions are strong, suggesting that revenue conditionality cannot substitute for weak institutions in mitigating the negative effect of aid on tax revenue collection.