Investigating the impact of donor funding: a case study on Lebanon

The purpose of this paper is to develop a macroeconomic framework to predict the impact of transient donor funding on a developing economy and to facilitate evaluation of the effectiveness of alternative uses of this funding in attaining the desired outcomes.

A simulation analysis of the macroeconomic impact of donor funding on the Lebanese economy is conducted.

The paper evaluates the potential outcomes for the country from alternative uses of this donor funding and concludes that targeting infrastructure expenditure, mediated through the government, will produce the most beneficial longer term outcomes.

This paper is the first substantive macro model to be developed for the Lebanese economy. It is the first major study of the contribution of donor funding to the Lebanese macro-economy. The framework, however, can be generalised to other developing donor recipient nations.