We adopt a disaggregate approach to study the link between aid and Dutch Disease dynamics, using a natural experiment in China. Specifically, we examine whether post-disaster aid provided to a subsample of Chinese counties, devastated by an earthquake in 2008, affects the sectoral composition of local economies. Using different methods we consistently find that counties receiving (more) aid — even “nearby counties” not directly damaged by the earthquake — tend to suffer from a contraction of the manufacturing sector. Innovative features of the paper include its regional perspective; its identification strategy (resting on a special provision in Chinese policy—pairwise aid); and its focus on Dutch disease effects in the context of post-disaster aid.
- Dutch disease
Bulte, E., Xu, L., & Zhang, X. (2018). Post-disaster aid and development of the manufacturing sector: Lessons from a natural experiment in China. European Economic Review, 101, 441-458. https://doi.org/10.1016/j.euroecorev.2017.10.019