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Powerful donors and foreign policy: The role of multilateral financial institutions

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Author Info
Espen Villanger

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Abstract

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.

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Length: 22 pages
Date of creation: 2004
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Handle: RePEc:chm:wpaper:wp2004-12

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Related research
Keywords: Foreign policies Conditionality Unilateralism;

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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

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  13. Collier, Paul & Guillaumont, Patrick & Guillaumont, Sylviane & Gunning, Jan Willem, 1997. "Redesigning conditionality," World Development, Elsevier, vol. 25(9), pages 1399-1407, September. [Downloadable!] (restricted)
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  16. Alesina, Alberto & Dollar, David, 2000. " Who Gives Foreign Aid to Whom and Why?," Journal of Economic Growth, Springer, vol. 5(1), pages 33-63, March. [Downloadable!] (restricted)
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  17. Odd-Helge Fjeldstad & Florida Henjewele & Geoffrey Mwambe & Erasto Ngalewa & Knut Nygaard, 2004. "Local government finances and financial management in Tanzania," CMI Working Papers WP 2004: 7, CMI (Chr. Michelsen Institute), Bergen, Norway. [Downloadable!]
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Cited by:
(explanations, 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.)

  1. Mavrotas, George & Villanger, Espen, 2006. "Multilateral Aid Agencies and Strategic Donor Behaviour," Working Papers DP2006/02, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
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