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Does Conditionality Work? A Test for an Innovative US Aid Scheme

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Author Info

  • Hannes Öhler

    (Georg-August-University Göttingen)

  • Peter Nunnenkamp

    (Kiel Institute for the World Economy)

  • Axel Dreher

    (Georg-August-University Göttingen)

Abstract

Performance-based aid has been proposed as an alternative to the failed traditional approach whereby donors make aid conditional on the reform promises of recipient countries. However, hardly any empirical evidence exists on whether ex post rewards are effective in inducing reforms. We attempt to fill this gap by investigating whether the Millennium Challenge Corporation (MCC) was successful in promoting better control of corruption. We employ a difference-in-difference-in-differences (DDD) approach, considering different ways of defining the treatment group as well as different time periods during which incentive effects could have materialized. We find evidence of strong anticipation effects immediately after the announcement of the MCC, while increasing uncertainty about the timing and amount of MCC aid appear to weaken the incentive to fight corruption over time. We conclude that – if designed properly – conditionality can work.

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Bibliographic Info

Paper provided by Courant Research Centre PEG in its series Courant Research Centre: Poverty, Equity and Growth - Discussion Papers with number 34.

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Date of creation: 15 Jun 2010
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Handle: RePEc:got:gotcrc:034

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Keywords: Foreign Aid; Corruption; Millennium Challenge Corporation; MCC Effect;

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References

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Does the MCC Effect Exist?
    by Sarah Rose in Rethinking U.S. Foreign Assistance Blog on 2013-02-20 21:42:07
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Nunnenkamp, Peter & Öhler, Hannes, 2010. "Throwing foreign aid at HIV/AIDS in developing countries: Missing the target?," Center for European, Governance and Economic Development Research Discussion Papers 111, University of Goettingen, Department of Economics.
  2. David Fielding, 2011. "The Dynamics of Aid and Political Rights," Working Papers 1102, University of Otago, Department of Economics, revised Apr 2011.
  3. Peter Nunnenkamp & Rainer Thiele, 2011. "Financing for Development: The Gap between Words and Deeds since Monterrey," Kiel Working Papers 1691, Kiel Institute for the World Economy.

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