The Macroeconomic Management of Foreign Resource Inflow

Published on 30 Sep 2010
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Summary

This paper discusses resource flows to developing countries. The findings show that many countries had managed to attract an increasing volume of foreign resources. However, their global allocation remained uneven, with the majority of resources –  even foreign aid – flowing to middle-income countries. The evidence indicates that volatility of foreign resources has increased in recent years, with the unpredictability of aid disbursements and the pro-cyclical nature of capital flows remaining a concern. These patterns are usually associated with damaging economic consequences, which undermine the positive impacts of foreign inflows. The paper proposes a pro-poor macroeconomic framework, which is better suited to deal with the macroeconomic challenges arising from large resource inflows.

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