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Competitive Proliferation of Aid Projects: A Model

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  • David Roodman

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Abstract

The proliferation of aid projects may overburden recipient governments with reporting requirements, donor visits, and other administrative overhead, siphoning off scarce domestic recipient resources, such as tax revenue or the time of skilled government officials, from directly productive use. But greater oversight may also improve the administration of projects, increasing development. I present a model of aid projects that reflects both sides of this coin. It posits a distinction between national-level governance and project-level governance. A donor can raise project-level governance above the baseline national level by requiring oversight activities of the recipient, although the benefits from doing so are less where national-level governance is already high. The model assumes that larger projects demand proportionally less oversight activity from the recipient. Comparative statics analysis suggests that to maximize development, projects should be larger where aid volume is higher, to avoid overburdening recipient administrative capacity; where recipient resources are scarcer, for the same reason; and where national governance is good, since the marginal benefit of oversight is then lower. A multi-donor generalization shows how donors that are imperfectly altruistic, caring most about the success of their own projects, will tend to sink into competitive proliferation, in which each donor subdivides its aid budget into smaller projects to raise the marginal productivity of the recipient’s resources in those projects and attract them away from other donors. The inefficiency arises from the lack of a market among donors for recipient resources. In a Nash equilibrium, competitive proliferation reduces overall development. But the smallest (selfish) donors can gain. This would discourage them from cooperating with other donors to contain competitive proliferation.

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Bibliographic Info

Paper provided by Center for Global Development in its series Working Papers with number 89.

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Length: 40 pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:cgd:wpaper:89

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Web page: http://www.cgdev.org

Related research

Keywords: Foreign aid; donor coordination; project proliferation;

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References

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  1. Knack, Stephen & Rahman, Aminur, 2007. "Donor fragmentation and bureaucratic quality in aid recipients," Journal of Development Economics, Elsevier, vol. 83(1), pages 176-197, May.
  2. Collier, Paul & Dollar, David, 1999. "Aid allocation and poverty reduction," Policy Research Working Paper Series 2041, The World Bank.
  3. David Roodman, 2006. "Aid Project Proliferation and Absorptive Capacity," Working Papers 75, Center for Global Development.
  4. Alberto Alesina & David Dollar, 1998. "Who Gives Foreign Aid to Whom and Why?," NBER Working Papers 6612, National Bureau of Economic Research, Inc.
  5. Morss, Elliott R., 1984. "Institutional destruction resulting from donor and project proliferation in Sub-Saharan African countries," World Development, Elsevier, vol. 12(4), pages 465-470, April.
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Cited by:
  1. KIMURA Hidemi & SAWADA Yasuyuki & MORI Yuko, 2007. "Aid Proliferation and Economic Growth: A Cross-Country Analysis," Discussion papers 07044, Research Institute of Economy, Trade and Industry (RIETI).
  2. Matteo Bobba & Andrew Powell, 2006. "Mediación multilateral de la ayuda extranjera," Research Department Publications 4501, Inter-American Development Bank, Research Department.
  3. I�aki Aldasoro & Peter Nunnenkamp & Rainer Thiele, 2010. "Less aid proliferation and more donor coordination? The wide gap between words and deeds," Journal of International Development, John Wiley & Sons, Ltd., vol. 22(7), pages 920-940.
  4. Matteo Bobba & Andrew Powell, 2006. "Multilateral Intermediation of Foreign Aid: What is the Trade-Off for Donor Countries?," Research Department Publications 4500, Inter-American Development Bank, Research Department.
  5. Christopher Kilby, 2010. "What Determines the Size of Aid Projects?," Villanova School of Business Department of Economics and Statistics Working Paper Series 10, Villanova School of Business Department of Economics and Statistics.

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