Advanced Search
MyIDEAS: Login to save this paper or follow this series

Aid, Growth and Devolution

Contents:

Author Info

  • 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.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-09/cesifo1_wp2805.pdf
Download Restriction: no

Bibliographic Info

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

as in new window
Length:
Date of creation: 2009
Date of revision:
Handle: RePEc:ces:ceswps:_2805

Contact details of provider:
Postal: Poschingerstrasse 5, 81679 Munich
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Email:
Web page: http://www.cesifo.de
More information through EDIRC

Related research

Keywords: foreign aid; growth; decentralization;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Gibson, Clark C. & Andersson, Krister & Ostrom, The late Elinor & Shivakumar, Sujai, 2005. "The Samaritan's Dilemma: The Political Economy of Development Aid," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199278855, October.
  2. Jan K. Brueckner, 1999. "Fiscal Decentralization in Developing Countries: The Effects of Local Corruption and Tax Evasion," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 1, China Economics and Management Academy, Central University of Finance and Economics, revised Apr 2000.
  3. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, Elsevier, vol. 46(8), pages 1475-1500, September.
  4. Luis Angeles & Kyriakos C. Neanidis, 2006. "Aid Effectiveness: The Role of the Local Elite," Centre for Growth and Business Cycle Research Discussion Paper Series, Economics, The Univeristy of Manchester 80, Economics, The Univeristy of Manchester.
  5. Eskander Alvi & Debasri Mukherjee & Elias Kedir Shukralla, 2008. "Aid, Policies, and Growth in Developing Countries: A New Look at the Empirics," Southern Economic Journal, Southern Economic Association, Southern Economic Association, vol. 74(3), pages 693-706, January.
  6. Hamid Davoodi & Heng-fu Zou, 1996. "Fiscal Decentralization and Economic Growth: A Cross-Country Study," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 98, China Economics and Management Academy, Central University of Finance and Economics.
  7. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, Wiley Blackwell, vol. 7(3), pages 207-227, November.
  8. Zhang, Tao & Zou, Heng-fu, 1998. "Fiscal decentralization, public spending, and economic growth in China," Journal of Public Economics, Elsevier, Elsevier, vol. 67(2), pages 221-240, February.
  9. R. Lensink & H. White, 2001. "Are There Negative Returns to Aid?," Journal of Development Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(6), pages 42-65.
  10. George Economides & Sarantis Kalyvitis & Apostolis Philippopoulos, 2008. "Does foreign aid distort incentives and hurt growth? Theory and evidence from 75 aid-recipient countries," Public Choice, Springer, Springer, vol. 134(3), pages 463-488, March.
  11. Raghuram G. Rajan & Arvind Subramanian, 2005. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," NBER Working Papers 11513, National Bureau of Economic Research, Inc.
  12. Araral Jr., Eduardo, 2009. "What Explains Collective Action in the Commons? Theory and Evidence from the Philippines," World Development, Elsevier, Elsevier, vol. 37(3), pages 687-697, March.
  13. Ulrich Thießen, 2003. "Fiscal Decentralisation and Economic Growth in High-Income OECD Countries," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 24(3), pages 237-274, September.
  14. Dan Stegarescu, 2005. "Public sector decentralisation: measurement concepts and recent international trends," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 26(3), pages 301-333, September.
  15. Christian Lessmann & Gunther Markwardt, 2010. "Decentralization and Foreign Aid Effectiveness: Do Aid Modality and Federal Design Matter in Poverty Alleviation?," CESifo Working Paper Series 3035, CESifo Group Munich.
  16. Enikolopov, Ruben & Zhuravskaya, Ekaterina, 2003. "Decentralization and Political Institutions," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3857, C.E.P.R. Discussion Papers.
  17. Michael Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting Chickens When They Hatch: The Short-term Effect of Aid on Growth," Working Papers, Center for Global Development 44, Center for Global Development.
  18. Alberto Alesina & Beatrice Weder, 1999. "Do Corrupt Governments Receive Less Foreign Aid?," NBER Working Papers 7108, National Bureau of Economic Research, Inc.
  19. Papanek, Gustav F, 1973. "Aid, Foreign Private Investment, Savings, and Growth in Less Developed Countries," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(1), pages 120-30, Jan.-Feb..
  20. Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 12(3), pages 375-398.
  21. Weingast, Barry R, 1995. "The Economic Role of Political Institutions: Market-Preserving Federalism and Economic Development," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 11(1), pages 1-31, April.
  22. David Roodman, 2007. "The Anarchy of Numbers: Aid, Development, and Cross-Country Empirics," World Bank Economic Review, World Bank Group, World Bank Group, vol. 21(2), pages 255-277, May.
  23. Patrick GUILLAUMONT & Lisa CHAUVET, 1999. "Aid and Performance: A Reassessment," Working Papers 199910, CERDI.
  24. Carl-Johan Dalgaard & Henrik Hansen & Finn Tarp, 2001. "On the Empirics of Foreign Aid and Growth," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 03-13, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Sep 2003.
  25. Yakita, Akira, 2003. "Taxation and growth with overlapping generations," Journal of Public Economics, Elsevier, Elsevier, vol. 87(3-4), pages 467-487, March.
  26. Alberto Alesina & David Dollar, 1998. "Who Gives Foreign Aid to Whom and Why?," NBER Working Papers 6612, National Bureau of Economic Research, Inc.
  27. Jonas Dovern & Peter Nunnenkamp, 2007. "Aid and Growth Accelerations: An Alternative Approach to Assessing the Effectiveness of Aid," Kyklos, Wiley Blackwell, Wiley Blackwell, vol. 60(3), pages 359-383, 08.
  28. Bazoumana Ouattara & Eric Strobl, 2008. "Aid, Policy and Growth: Does Aid Modality Matter?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 144(2), pages 347-365, July.
  29. Alberto Alesina & Arnaud Devleeschauwer & William Easterly & Sergio Kurlat & Romain Wacziarg, 2003. "Fractionalization," NBER Working Papers 9411, National Bureau of Economic Research, Inc.
  30. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, Elsevier, vol. 64(2), pages 547-570, April.
  31. Charles C. Chang & Eduardo Fernández-Arias & Luis Serven, 1998. "Measuring Aid Flows: A New Approach," Research Department Publications, Inter-American Development Bank, Research Department 4146, Inter-American Development Bank, Research Department.
  32. Thornton, John, 2007. "Fiscal decentralization and economic growth reconsidered," Journal of Urban Economics, Elsevier, vol. 61(1), pages 64-70, January.
  33. J. Svensson, 1999. "Aid, Growth and Democracy," Economics and Politics, Wiley Blackwell, Wiley Blackwell, vol. 11(3), pages 275-297, November.
  34. Susan Steiner, 2006. "Decentralisation in Uganda: Exploring the Constraints for Poverty Reduction," GIGA Working Paper Series 31, GIGA German Institute of Global and Area Studies.
  35. Levy, Victor, 1988. "Aid and growth in Sub-Saharan Africa: The recent experience," European Economic Review, Elsevier, Elsevier, vol. 32(9), pages 1777-1795, November.
  36. Craig Burnside & David Dollar, 2004. "Aid, Policies, and Growth: Reply," American Economic Review, American Economic Association, American Economic Association, vol. 94(3), pages 781-784, June.
  37. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, American Economic Association, vol. 89(3), pages 379-399, June.
  38. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, Elsevier, vol. 40(2), pages 289-329, February.
  39. Fan, C. Simon & Lin, Chen & Treisman, Daniel, 2009. "Political decentralization and corruption: Evidence from around the world," Journal of Public Economics, Elsevier, Elsevier, vol. 93(1-2), pages 14-34, February.
  40. Omar Azfar & Tugrul Gurgur, 2008. "Does corruption affect health outcomes in the Philippines?," Economics of Governance, Springer, Springer, vol. 9(3), pages 197-244, July.
  41. World Bank, 2009. "World Development Indicators 2009," World Bank Publications, The World Bank, number 4367, August.
  42. C-J. Dalgaard & H. Hansen, 2001. "On Aid, Growth and Good Policies," Journal of Development Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(6), pages 17-41.
  43. Abdiweli Ali & Hodan Isse, 2005. "An Empirical Analysis of the Effect of Aid on Growth," International Advances in Economic Research, Springer, Springer, vol. 11(1), pages 1-11, March.
  44. Reinikka, Ritva & Svensson, Jakob, 2002. "Explaining Leakage of Public Funds," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3227, C.E.P.R. Discussion Papers.
  45. Andros Kourtelos & Chih Ming Tan & Xiaobo Zhang, 2006. "Is the Relationship Between Aid and Economics Growth Nonlinear?," University of Cyprus Working Papers in Economics, University of Cyprus Department of Economics 11-2006, University of Cyprus Department of Economics.
  46. Jan K. Brueckner, 2005. "Fiscal Federalism and Economic Growth," Working Papers 050612, University of California-Irvine, Department of Economics.
  47. Lessmann, Christian & Markwardt, Gunther, 2010. "One Size Fits All? Decentralization, Corruption, and the Monitoring of Bureaucrats," World Development, Elsevier, Elsevier, vol. 38(4), pages 631-646, April.
  48. 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, Elsevier, vol. 77(3), pages 307-330, September.
  49. Pranab Bardhan, 2002. "Decentralization of Governance and Development," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 16(4), pages 185-205, Fall.
  50. Papanek, Gustav F, 1972. "The Effect of Aid and other Resource Transfers on Savings and Growth in Less Developed Countries," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 82(327), pages 934-50, September.
  51. William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 17(3), pages 23-48, Summer.
  52. Jin, Hehui & Qian, Yingyi & Weingast, Barry R., 2005. "Regional decentralization and fiscal incentives: Federalism, Chinese style," Journal of Public Economics, Elsevier, Elsevier, vol. 89(9-10), pages 1719-1742, September.
  53. Easterly, William, 1999. "The ghost of financing gap: testing the growth model used in the international financial institutions," Journal of Development Economics, Elsevier, Elsevier, vol. 60(2), pages 423-438, December.
  54. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(1), pages 83-116, February.
  55. Voivodas, Constantin S., 1973. "Exports, foreign capital inflow and economic growth," Journal of International Economics, Elsevier, Elsevier, vol. 3(4), pages 337-349, November.
  56. Gary Woller & Kerk Phillips, 1998. "Fiscal decentralisation and IDC economic growth: An empirical investigation," Journal of Development Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 34(4), pages 139-148.
  57. Mark McGillivray & Simon Feeny & Niels Hermes & Robert Lensink, 2006. "Controversies over the impact of development aid: it works; it doesn't; it can, but that depends …," Journal of International Development, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 18(7), pages 1031-1050.
  58. Muhammed Islam, 2005. "Regime changes, economic policies and the effect of aid on growth," Journal of Development Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 41(8), pages 1467-1492.
  59. Mosley, Paul & Hudson, John & Horrell, Sara, 1987. "Aid, the Public Sector and the Market in Less Developed Countries," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 97(387), pages 616-41, September.
  60. Oecd, 2002. "Aid volume, channels and allocations for poverty reduction," OECD Journal on Development, OECD Publishing, OECD Publishing, vol. 3(3), pages 33-46.
  61. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, American Economic Association, vol. 90(4), pages 847-868, September.
  62. Iimi, Atsushi, 2005. "Decentralization and economic growth revisited: an empirical note," Journal of Urban Economics, Elsevier, vol. 57(3), pages 449-461, May.
  63. Pranab Bardhan & Dilip Mookherjee, 2006. "Decentralisation and Accountability in Infrastructure Delivery in Developing Countries," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 116(508), pages 101-127, 01.
  64. Oates, Wallace E., 1993. "Fiscal Decentralization and Economic Development," National Tax Journal, National Tax Association, vol. 46(2), pages 237-43, June.
  65. Francis, Paul & James, Robert, 2003. "Balancing Rural Poverty Reduction and Citizen Participation: The Contradictions of Uganda's Decentralization Program," World Development, Elsevier, Elsevier, vol. 31(2), pages 325-337, February.
  66. Bacha, Edmar L., 1990. "A three-gap model of foreign transfers and the GDP growth rate in developing countries," Journal of Development Economics, Elsevier, Elsevier, vol. 32(2), pages 279-296, April.
  67. Tavares, Jose, 2003. "Does foreign aid corrupt?," Economics Letters, Elsevier, Elsevier, vol. 79(1), pages 99-106, April.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

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

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_2805. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.