Foreign Aid and Recurrent Cost: Donor Competition, Aid Proliferation and Budget Support
AbstractRecent empirical studies reveal that effectiveness of aid on growth is ambiguous. This paper considers aid proliferation - excess aid investment relative to recurrent cost - as a potential cause that undermines aid effectiveness, because aid projects can only produce sustainable benefits when sufficient recurrent costs are disbursed. We consider the donor's budget support as a device to supplement the shortage of the recipient's recurrent cost and to alleviate the misallocation of inputs. However, when donors have self-interested preferences over the success of their own projects to those conducted by others, they provide insufficient budget support relative to aid which results in aid proliferation. Moreover, aid proliferation is shown to be worsened by the presence of more donors.
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Bibliographic InfoPaper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 07051.
Length: 15 pages
Date of creation: Aug 2007
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Other versions of this item:
- Yutaka Arimoto & Hisaki Kono, 2009. "Foreign Aid and Recurrent Cost: Donor Competition, Aid Proliferation, and Budget Support," Review of Development Economics, Wiley Blackwell, vol. 13(2), pages 276-287, 05.
- NEP-ALL-2007-08-27 (All new papers)
- NEP-DEV-2007-08-27 (Development)
- NEP-PPM-2007-08-27 (Project, Program & Portfolio Management)
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