The Curse of Windfall Income: How Foreign Aid and Natural Resources Dependence Can Constrain Growth

Natural resources and foreign aid can both provide a developing nation with considerable wealth. But this wealth almost never translates into GDP growth. This thesis explores why free money does not translate into growth, and why windfall income may not be such a blessing. Plenty of research has examined how natural resource income can inflate a nation's currency and hurt export-oriented industries. Less explored is the idea that foreign aid income may be having the exact same effect. This thesis tests the hypothesis that aid, like resource wealth, can artificially raise currency values and hurt manufactures in poor developing nations.