The opportunity for a powerful donor country, such as the United States, to use a multilateral financial institution (MFI) strategically in order to promote its own foreign policy goals has received little attention. The gain to a donor that is able to make the World Bank or other MFIs adapt to this donor's view on an issue can be substantial. In that case, all the contributions from the other member nations will also stand behind the MFI's stance on the particular issue, and recipients may feel compelled to comply with this massive counterpart. As a result, influencing MFIs may give much more leverage to a donor's foreign assistance in the foreign policy arena than pursuing the same goals bilaterally with the same amount of aid. We present a model where a donor tries to influence a MFI to put pressure on a recipient to comply with the foreign policy interests of the donor. This game-theoretic multi-agent model with one donor, two MFIs and one recipient illustrates the virtue of using the multilateral as an instrument in foreign policy as seen from the powerful donor's point of view. Similarly, we show how this strategic behavior is damaging for the recipient in particular and for development in general.
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Paper provided by CMI (Chr. Michelsen Institute), Bergen, Norway in its series CMI Working Papers with number
WP 2004: 12.
Find related papers by JEL classification: F35 - International Economics - - International Finance - - - Foreign Aid F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
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.:
Craig Burnside & David Dollar, 2000.
"Aid, Policies, and Growth,"
American Economic Review,
American Economic Association, vol. 90(4), pages 847-868, September.
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