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Foreign Aid and Recurrent Cost: Donor Competition, Aid Proliferation, and Budget Support

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  • Yutaka Arimoto
  • Hisaki Kono

Abstract

Recent empirical studies reveal that effectiveness of aid on growth is ambiguous. The authors consider aid proliferation-excess aid investment relative to recurrent cost-as a potential cause that undermines aid effectiveness, because aid projects can only produce sustainable benefits when sufficient recurrent costs are disbursed. They consider the donor's budget support as a device to supplement the shortage of the recipient's recurrent cost and to alleviate the misallocation of inputs. However, when donors have self-interested preferences for the success of their own projects over those conducted by others, they provide insufficient budget support relative to aid, which results in aid proliferation. Moreover, aid proliferation is shown to be worsened by the presence of more donors. Copyright � 2009 The Authors. Journal compilation � 2009 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Development Economics.

Volume (Year): 13 (2009)
Issue (Month): 2 (05)
Pages: 276-287

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Handle: RePEc:bla:rdevec:v:13:y:2009:i:2:p:276-287

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Cited by:
  1. Kilby, Christopher, 2011. "What Determines the Size of Aid Projects?," World Development, Elsevier, vol. 39(11), pages 1981-1994.
  2. Iñaki Aldasoro & Peter Nunnenkamp & Rainer Thiele, 2009. "Less Aid Proliferation and More Donor Coordination? The Wide Gap between Words and Deeds," Kiel Working Papers 1516, Kiel Institute for the World Economy.
  3. Kimura, Hidemi & Mori, Yuko & Sawada, Yasuyuki, 2012. "Aid Proliferation and Economic Growth: A Cross-Country Analysis," World Development, Elsevier, vol. 40(1), pages 1-10.

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