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Aid, Growth and Devolution

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  • Christian Lessmann
  • Gunther Markwardt

Abstract

This paper examines whether the federal structure of aid-receiving countries matters in explaining aid effectiveness. Following the decentralization theorem, the devolution of powers should increase aid effectiveness, since local decision-makers are better informed about local needs. At the same time, decentralization has reverse effects, e.g., through coordination problems, excessive regulation, administrative costs and local capture. Using panel data for up to 60 countries, we find that aid is less effective or even harmful in decentralized countries. Our results imply that donor countries should carefully consider how both anti-poverty instruments - financial assistance and decentralization - work together.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2805.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2805

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Keywords: foreign aid; growth; decentralization;

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Cited by:
  1. Lessmann, Christian & Markwardt, Gunther, 2010. "Fiscal federalism and foreign transfers: does inter-jurisdictional competition increase foreign aid effectiveness?," Dresden Discussion Paper Series in Economics 10/10, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  2. Aurore Gary & Mathilde Maurel, 2013. "The effect of donors' policy coherence on growth," Documents de travail du Centre d'Economie de la Sorbonne 13046, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  3. Aurore Gary & Mathilde Maurel, 2013. "The effect of donors' policy coherence on growth," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00825816, HAL.

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