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Decentralised and cooperative aid provision with short-term and long-term aid

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  • Jon Strand

Abstract

We analyze two donors providing long- and short-run aid to one receiving (poor) country, and who may give aid in coordinated or non-coordinated fashion. An elite controls receiver policy, and diverts resources away from a poor target group. When strategic moves are simultaneous, there is excessive wasteful short-run aid diversion, which could be made worse by donor cooperation. When donors move first, aid is lower, donor utility is higher, and donors should always cooperate. Investments, by the receiving country and due to long-term aid, is greater and the solution more efficient when investments are complements than when they are substitutes. The model characterizes donors that may be considered as “gullible”, or as “skeptical”. The former type gives generously but its aid is largely wasted; the latter gives less aid, but also wastes less. Copyright © 2009 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jid.1632
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

Volume (Year): 22 (2010)
Issue (Month): 7 ()
Pages: 906-919

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Handle: RePEc:wly:jintdv:v:22:y:2010:i:7:p:906-919

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Web page: http://www3.interscience.wiley.com/journal/5102/home

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  1. Raghuram G. Rajan & Arvind Subramanian, 2008. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 643-665, November.
  2. Dollar, David & Alesina, Alberto, 2000. "Who Gives Foreign Aid to Whom and Why?," Scholarly Articles 4553020, Harvard University Department of Economics.
  3. Dollar, David & Svensson, Jakob, 2000. "What Explains the Success or Failure of Structural Adjustment Programmes?," Economic Journal, Royal Economic Society, vol. 110(466), pages 894-917, October.
  4. Azam, Jean-Paul & Laffont, Jean-Jacques, 2003. "Contracting for aid," Journal of Development Economics, Elsevier, vol. 70(1), pages 25-58, February.
  5. Raghuram Rajan & Arvind Subramanian, 2005. "Aid and Growth," IMF Working Papers 05/127, International Monetary Fund.
  6. 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.
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