Aid, spending strategies and productivity effects: A multi-sectoral CGE analysis for Zambia

► We analyze the effects of aid on production, trade, welfare and income distribution. ► We provide detailed explanation of Dutch Disease effects of aid on a sectoral basis. ► We evaluate several public spending strategies and include productivity effects. ► Two-stage simulations distinguish between short and long-run effects. ► We discuss policy trade-offs between investment and transfer spending scenarios.