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

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  • 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
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Cited by:
  1. repec:hal:journl:halshs-00747405 is not listed on IDEAS
  2. Martin Acht & Toman Omar Mahmoud & Rainer Thiele, 2014. "Corrupt Governments Receive Less Bilateral Aid: Governance and the Delivery of Foreign Aid through Non-Government Actors," Kiel Working Papers 1901, Kiel Institute for the World Economy.
  3. Peter Nunnenkamp & Rainer Thiele, 2013. "Financing for Development: The Gap between Words and Deeds since Monterrey," Development Policy Review, Overseas Development Institute, Overseas Development Institute, vol. 31(1), pages 75-98, 01.
  4. Fuchs, Andreas & Klann, Nils-Hendrik, 2013. "Emergency Aid 2.0," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order, Verein für Socialpolitik / German Economic Association 79898, Verein für Socialpolitik / German Economic Association.
  5. Sonntag, Diana, 2012. "Rethinking aid for AIDS A public good approach," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century, Verein für Socialpolitik / German Economic Association 62080, Verein für Socialpolitik / German Economic Association.
  6. Mireille Chiroleu-Assouline & Jean-Christophe Poudou & Sébastien Roussel, 2012. "North / South Contractual Design through the REDD+ Scheme," Working Papers, LAMETA, Universtiy of Montpellier 12-31, LAMETA, Universtiy of Montpellier, revised Oct 2012.
  7. David Fielding, 2011. "The Dynamics of Aid and Political Rights," Working Papers, University of Otago, Department of Economics 1102, University of Otago, Department of Economics, revised Apr 2011.
  8. Roland Hodler, 2011. "Development (Paradigm) Failures," Working Papers, Swiss National Bank, Study Center Gerzensee 11.01, Swiss National Bank, Study Center Gerzensee.
  9. Youngwan Kim & Peter Nunnenkamp, 2013. "Does It Pay for US-based NGOs to Go to War? Empirical Evidence for Afghanistan and Iraq," Kiel Working Papers 1878, Kiel Institute for the World Economy.
  10. Youngwan Kim & Peter Nunnenkamp & Chandreyee Bagchi, 2014. "Natural Disasters and Private Donations to NGOs: The Effects of Being Present after the Tsunami in the Indian Ocean," Kiel Working Papers 1890, Kiel Institute for the World Economy.
  11. Angelsen, Arild, 2013. "REDD+ as performance-based aid: General lessons and bilateral agreements of Norway," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).

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