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Foreign Aid as Prize: Incentives for a Pro-Poor Policy

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Author Info
Tejashree Sayanak
Sajal Lahiri

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Abstract

The authors develop a theoretical model of foreign aid to analyze a method of disbursement of aid which induces the recipient government to follow a more pro-poor policy than it otherwise would do. In their two-period model, aid is given in the second period and the volume of it depends on the level of well-being of the target group in the first period. They find that this way of designing aid does increase the welfare of the poor. They also consider the situations where the donor and the recipient governments act simultaneously as well as sequentially, and they find that, by moving first in a sequential game, the donor country can, under certain conditions, increase the welfare of the poor and that of its own country compared to the case of simultaneous moves. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9361.2009.00498.x
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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Development Economics.

Volume (Year): 13 (2009)
Issue (Month): s1 (08)
Pages: 403-415
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Handle: RePEc:bla:rdevec:v:13:y:2009:i:s1:p:403-415

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  1. Svensson, Jakob, 2000. "Foreign aid and rent-seeking," Journal of International Economics, Elsevier, vol. 51(2), pages 437-461, August. [Downloadable!] (restricted)
  2. Mosley, Paul & Hudson, John & Horrell, Sara, 1987. "Aid, the Public Sector and the Market in Less Developed Countries," Economic Journal, Royal Economic Society, vol. 97(387), pages 616-41, September. [Downloadable!] (restricted)
  3. C. S. Adam & S. A. O'Connell, 1999. "Aid, Taxation and Development in Sub-Saharan Africa," Economics and Politics, Blackwell Publishing, vol. 11(3), pages 225-253, November. [Downloadable!] (restricted)
  4. Paul Collier & David Dollar, 2004. "Development effectiveness: what have we learnt?," Economic Journal, Royal Economic Society, vol. 114(496), pages F244-F271, 06. [Downloadable!] (restricted)
  5. Sajal Lahiri & Pascalis Raimondos-Møller, 2004. "Donor Strategy under the Fungibility of Foreign Aid," Economics and Politics, Blackwell Publishing, vol. 16(2), pages 213-231, 07. [Downloadable!] (restricted)
  6. William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer. [Downloadable!] (restricted)
  7. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February. [Downloadable!] (restricted)
  8. Djajic, Slobodan & Lahiri, Sajal & Raimondos-Moller, Pascalis, 1999. "Foreign Aid, Domestic Investment and Welfare," Economic Journal, Royal Economic Society, vol. 109(458), pages 698-707, October. [Downloadable!] (restricted)
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  9. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September. [Downloadable!] (restricted)
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  10. Svensson, Jakob, 2003. "Why conditional aid does not work and what can be done about it?," Journal of Development Economics, Elsevier, vol. 70(2), pages 381-402, April. [Downloadable!] (restricted)
  11. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April. [Downloadable!] (restricted)
  12. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2004. "On The Empirics of Foreign Aid and Growth," Economic Journal, Royal Economic Society, vol. 114(496), pages F191-F216, 06. [Downloadable!] (restricted)
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  13. Swaroop, Vinaya & Jha, Shikha & Sunil Rajkumar, Andrew, 2000. "Fiscal effects of foreign aid in a federal system of governance: The case of India," Journal of Public Economics, Elsevier, vol. 77(3), pages 307-330, September. [Downloadable!] (restricted)
  14. Van Long, Ngo & Vousden, Neil, 1991. "Protectionist responses and declining industries," Journal of International Economics, Elsevier, vol. 30(1-2), pages 87-103, February. [Downloadable!] (restricted)
  15. George Mavrotas, 2005. "Aid heterogeneity: looking at aid effectiveness from a different angle," Journal of International Development, John Wiley & Sons, Ltd., vol. 17(8), pages 1019-1036. [Downloadable!]
  16. Alberto Alesina & Beatrice Weder, 2002. "Do Corrupt Governments Receive Less Foreign Aid?," American Economic Review, American Economic Association, vol. 92(4), pages 1126-1137, September. [Downloadable!]
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