ISSN: 2056-3736 (Online Version) | 2056-3728 (Print Version)

Foreign Aid and Dutch Disease: The Case of Vietnam

Hiroaki Sakurai

Correspondence: Hiroaki Sakurai,

Faculty of Intercultural Studies, Gakushuin Women’s College

pdf (465.96 Kb) | doi:


This study examines whether foreign aid from 1986 to 2019 caused the Dutch disease effect in Vietnam using a VAR model and Granger causality test. In this context, “Dutch disease” refers to the weakening of manufacturing processes as a consequence of the appreciation of a local currency due to capital inflow. Since foreign aid is considered a type of capital inflow, it is among the reasons for the appreciation of a local currency, which may offset the impact of foreign aid on economic growth. Although Vietnam experienced rapid economic growth, along with a large amount of foreign aid and appreciation in the real exchange rate, after Doi Moi (economic reform) in 1986, few studies have yet been conducted. The estimation results show that foreign aid does not cause an appreciation of the local currency in Vietnam. Based on this result, the Dutch disease did not occur due to foreign aid in Vietnam.


  Foreign Aid, Dutch Disease, Vietnam.


Burke, P.J. and F.Z. Ahmadi-Esfahani (2006). Aid and growth: A study of South East Asia. Journal of Asian Economics 17(2), 350-362.Burnside, C. and D. Dollar (2000). Aid, policies, and growth. American Economic Review 90(4), 847-868.Corden, W.M. and J.P. Neary (1982). Booming sector and de-industrialisation in a small open economy. Economic Journal 92(368), 825-848.Dalgaard, C., H. Hansen, and F. Tarp (2004). On the empirics of foreign aid and growth. Economic Journal 114(496), F191-F216.Darvas, Z. (2012). Real Effective Exchange Rates for 178 Countries: A New Database. Working Paper 2012/06, Brugel.Darvas, Z. (2021). Timely Measurement of Real Effective Exchange Rates” Working Paper 15/2021, Brugel.Dufrenot, J. G. and B.E. Yehoue (2005). Real exchange rate misalignment: A panel co-integration and common factor analysis. IMF working paper, WP/05/164.Easterly, W., R. Levine, and D. Roodman (2004). Aid, Policies, and Growth: Comment. American Economic Review 94(3), 774-780.Easterly, W. (2007). Was development assistance a mistake? American Economic Review 97(2), 328-332.Elbadawi, I.A., L. Kaltani, and K. Schmidt-Hebbel (2008). Foreign aid, the real exchange rate, and economic growth in the aftermath of Civil Wars. World Bank Economic Review 22(1), 113-140.Fielding, D. (2010). Aid and Dutch disease in the South Pacific and in other small island states. Journal of Development Studies 46(5), 918-940.Fielding, D. and F. Gibson (2013). Aid and Dutch disease in Sub-Saharan Africa. Journal of African Economies 22(1), 1-21.Godfrey, M. Sophal, C., Kato, T., Piseth, L. V., Dorina, P., Saravy, T., Savora, T., and S. Sovannarith (2002). Technical Assistance and Capacity Development in an Aid-dependent Economy: The Experience of Cambodia. World Development 30(3), 355-373.Hansen, H. and F. Tarp (2001). Aid and growth regressions. Journal of Development Economics 64(2), 547-570.Nilar, Taguchi, H., and H. Sakurai (2016). Does foreign aid cause “Dutch disease”?: Case of Cambodia, Lao PDR, Myanmar and Vietnam. Journal of Reviews on Global Economics 5, 180-189.Rajan, R.G. and A. Subramanian (2011). Aid, Dutch disease, and manufacturing growth. Journal of Development Economics 94(1), 106-118.Reisinezhad, A. (2020). The Dutch Disease Revised: Theory and Evidence. Halshs-03012647.Sakurai, H. (2017). Foreign aid and Dutch disease in Thailand. Bulletin of Applied Economics 4(2), 57-64.Tekin, R.B. (2012). Development aid, openness to trade and economic growth in least developed countries: bootstrap panel Granger causality analysis. Procedia - Social and Behavioral Sciences 62, 716-721.