We examine the effects of aid on the growth of manufacturing, using a methodology that exploits thevariation within countries and across manufacturing sectors, and corrects for possible reverse causality.We find that aid inflows have systematic adverse effects on a country's competitiveness, as reflected in thelower relative growth rate of exportable industries. We provide some evidence suggesting that the channelfor these effects is the real exchange rate appreciation caused by aid inflows. We conjecture that this mayexplain, in part, why it is hard to find robust evidence that foreign aid helps countries grow
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