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Aid, Growth and Devolution

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Author Info
Christian Lessmann ()
Gunther Markwardt ()

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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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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2805.

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

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Related research
Keywords: foreign aid; growth; decentralization;

Find related papers by JEL classification:
H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
O20 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - General
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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    Other versions:
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  24. 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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  28. 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, vol. 134(3), pages 463-488, March. [Downloadable!] (restricted)
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  30. Christian Lessmann & Gunther Markwardt, 2009. "One Size Fits All? Decentralization, Corruption, and the Monitoring of Bureaucrats," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  33. Abdiweli Ali & Hodan Isse, 2005. "An Empirical Analysis of the Effect of Aid on Growth," International Advances in Economic Research, Springer, vol. 11(1), pages 1-11, March. [Downloadable!] (restricted)
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