Browsing by Author "Acharya, Abha"

This thesis examines the potential fungibility of foreign assistance to the Government of Nepal using two methods: an econometric model and a modified ORANI-G, a Computable General Equilibrium (CGE) model. I use the econometric model to corroborate the findings of the CGE model and to determine whether such a model can produce credible empirical evidence on aid fungibility. Both models indicate presence of general and categorical fungibility, and non-additionality in the use of aid in Nepal. I begin with a partial equilibrium econometric model to estimate government expenditures using a Seemingly Unrelated Regression (SUR). At the sectoral level, categorical aid is prone to reshuffling generating overall negative development investments in most of the sectors. At the aggregate level, a unit of aid produces a meagre 0.33 units of additional development expenditures in the Nepalese government budget. In addition, aid partially finances non-development expenditures, but only slightly enhances the governments’ own revenue effort. Next, I utilize the ORANI-G model with a Klein-Rubin functional form for government behaviour, rigidities in the labour market, and some additional parameters to study aid fungibility in Nepal. This produces results that are analogous to the econometric model. Foreign assistance to Nepal exhibits a high level of general and categorical fungibility, with an insignificant increase in revenue collection. Overall, a unit of aid stimulates only a 0.45 units of additional development expenditures in the Nepalese government budget. In using the CGE model to study fungibility, this thesis develops a new method of analyzing the research question whereas, previous studies use models in a partial equilibrium setting, failing to account for decision-making processes of the government. This thesis is an attempt to expand on the existing literature by introducing CGE models in the study of aid fungibility and to motivate further study into fungibility using CGE modelling.