“In this paper we discuss the macroeconomic implications of variations in AID inflows for Tanzania using an economy-wide dynamic CGE model. The major conclusions coming out from this work is that productivity effects matter. If additional aid and consequently increased public spending has a positive impact on productivity this would spur GDP growth and reduce the risk of an appreciating real exchange rate. In a way this resembles previous results in the aid-growth literature that aid has a positive
impact on growth in a country with good economic policies assuming that good policies
have a positive impact on productivity. Presenting various scenarios on the impact of
additional aid, a sustained GDP growth rate of around 7 percent would be possible to
achieve in a modest scaling-up aid scenario without any significant changes in the real exchange rate.”
