Many developing countries are characterized by a large informal sector, and are also often heavily dependent on remittance inflows from abroad. We develop a general equilibrium framework to understand better the dynamic absorption of remittances in a two-sector small open economy, by...

We develop a model in which public capital is both an engine of growth and a determinant of the distributions of wealth, income, and welfare. Government investment increases wealth inequality over time, regardless of its financing. The time path of income inequality is, however, highly sensitive...

This paper examines the significance of the time path of a given productivity increase on growth and inequality. Whereas the time path impacts only the transitional paths of aggregate quantities, it has both transitional and permanent consequences for wealth and income distribution. Hence, the...

This paper uses a two-sector open economy model to examine the dynamic absorption of foreign aid in the presence of both formal and informal production. Calibrating the model to yield a long-run equilibrium consistent with sample averages for 72 aid-recipient developing countries for the period...

The standard procedure for analyzing transitional dynamics in non-linear macro models has been to employ linear approximations. This paper investigates the reliability of this procedure in evaluating the dynamic adjustments to policy changes or structural shocks. We analyze this issue using the...

This paper examines the link between foreign aid, economic growth, and welfare in a small open economy. External transfers impinge on the recipient's macroeconomic performance by affecting resource allocation decisions and relative prices. The endogeneity of the labor-leisure choice and the...

The paper develops a theoretical framework for understanding the mechanism through which foreign aid affects macroeconomic performance. The authors find that the long-run impact of an aid program and the nature of the transitional dynamics it generates depend crucially on (i) the elasticity of...

This paper examines the absorption of government spending shocks in the presence of formal and informal production. Calibrating a two-sector open economy model that is consistent with data from India for the period 1990-2017, we show that increases in both government consumption and investment...

The standard procedure for analyzing transitional dynamics in non-linear macro models has been to employ linear approximations. This raises the central question of this paper: How reliable is this procedure in evaluating the dynamic adjustments to policy changes or structural shocks? This...

This paper examines the significance of the time path of a given productivity increase on growth and inequality. We show that whereas the time path impacts only the transitional path of aggregate quantities and has no effect on their ultimate steady-state levels, it has both transitional and...