Budget Support versus Project Aid

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Budget Support versus Project Aid

Author Info

Tito Cordella
Giovanni Dell'Ariccia

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Abstract

Should donors who are interested in the effectiveness of developmental programs rely on conditional budget support or on project aid? To answer this question, we present a model in which only a subset of the developmental expenditures can be subject to conditionality. We show that budget support is preferable to project aid when donors and recipients' preferences are aligned, and when assistance is small relative to recipients' resources. Then, we test our model estimating a modified growth model for a panel of developing countries, and find evidence in support of our predictions.

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Publisher Info
Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/88.

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Length: 31 pages
Date of creation: 08 May 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/88

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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. [Downloadable!] (restricted)
Other versions:
- Burnside, Craig & Dollar, David, 1997. "Aid, policies, and growth," Policy Research Working Paper Series 1777, The World Bank. [Downloadable!]
Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300. [Downloadable!] (restricted)
Other versions:
- Beck, Thorsten & Levine, Ross & Loayza, Norman, 1999. "Finance and the sources of growth," Policy Research Working Paper Series 2057, The World Bank. [Downloadable!]
Azam, Jean-Paul & Laffont, Jean-Jacques, 2003. "Contracting for aid," Journal of Development Economics, Elsevier, vol. 70(1), pages 25-58, February. [Downloadable!] (restricted)
Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July. [Downloadable!] (restricted)
Other versions:
- M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers 07, Centre for Economic Performance, LSE.
Tito Cordella & Giovanni Dell'Ariccia, 2002. "Limits of Conditionality in Poverty Reduction Programs," IMF Working Papers 02/115, International Monetary Fund. [Downloadable!]
Lahiri, Sajal & Raimondos-Møller, Pascalis, 2000. "Special Interest Politics and Aid Fungibility," CEPR Discussion Papers 2482, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Pack, Howard & Pack, Janet Rothenberg, 1993. "Foreign Aid and the Question of Fungibility," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 258-65, May. [Downloadable!] (restricted)
Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February. [Downloadable!] (restricted)
Collier, Paul & Guillaumont, Patrick & Guillaumont, Sylviane & Gunning, Jan Willem, 1997. "Redesigning conditionality," World Development, Elsevier, vol. 25(9), pages 1399-1407, September. [Downloadable!] (restricted)
Murshed, S Mansoob & Sen, Somnath, 1995. "Aid Conditionality and Military Expenditure Reduction in Developing Countries: Models of Asymmetric Information," Economic Journal, Royal Economic Society, vol. 105(429), pages 498-509, March. [Downloadable!] (restricted)
Jonathan Isham & Daniel Kaufmann, 1999. "The Forgotten Rationale For Policy Reform: The Productivity Of Investment Projects," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 149-184, February. [Downloadable!] (restricted)
Other versions:
- Isham, Jonathan & Kaufmann,Daniel, 1995. "The forgotten rationale for policy reform : the productivity of investment projects," Policy Research Working Paper Series 1549, The World Bank. [Downloadable!]

Full references

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.)

Craig Burnside & Domenico Fanizza, 2004. "Hiccups for HIPCs?," NBER Working Papers 10903, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Craig Burnside & Domenico Fanizza, 2003. "Hiccups for HIPCs," Macroeconomics 0305004, EconWPA. [Downloadable!]
Silvia Marchesi & Laura Sabani, 2005. "Prolonged Use and Conditionality Failure: Investigating the IMF Responsibility," Development Working Papers 202, Centro Studi Luca d'Agliano, University of Milano. [Downloadable!]
Rainer Thiele & Peter Nunnenkamp & Axel Dreher, 2006. "Sectoral Aid Priorities: Are Donors Really Doing their Best to Achieve the Millennium Development Goals?," Working papers 06-124, KOF Swiss Economic Institute, ETH Zurich. [Downloadable!]
Other versions:
- Rainer Thiele & Peter Nunnenkamp & Axel Dreher, 2006. "Sectoral Aid Priorities: Are Donors Really Doing their Best to Achieve the Millennium Development Goals?," Kiel Working Papers 1266, Kiel Institute for the World Economy. [Downloadable!]
- Thiele, Rainer & Nunnenkamp, Peter & Dreher, Axel, 2006. "Sectoral Aid Priorities: Are Donors Really Doing their Best to Achieve the Millennium Development Goals?," Proceedings of the German Development Economics Conference, Berlin 2006 21, Verein für Socialpolitik, Research Committee Development Economics. [Downloadable!]
Silvia Marchesi & Alessandro Missale, 2007. "How defensive were lending and aid to HIPC?," Working Papers 115, University of Milano-Bicocca, Department of Economics, revised 2007. [Downloadable!]
Craig Burnside & Domenico Fanizza, 2005. "Hiccups for HIPCs? Implications of Debt Relief for Fiscal Sustainability and Monetary Policy," Contributions to Macroeconomics, Berkeley Electronic Press, vol. 5(1), pages 1133-1133. [Downloadable!] (restricted)
Michael A. Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting chickens when they hatch: The short-term effect of aid on growth," International Finance 0407010, EconWPA. [Downloadable!]
Other versions:
- Michael Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting Chickens When They Hatch: The Short-term Effect of Aid on Growth," Working Papers 44, Center for Global Development. [Downloadable!]
Axel Dreher & Peter Nunnenkamp & Rainer Thiele, 2006. "Does Aid for Education Educate Children? Evidence from Panel Data," Kiel Working Papers 1290, Kiel Institute for the World Economy. [Downloadable!]
Other versions:
- Axel Dreher & Peter Nunnenkamp & Rainer Thiele, 2006. "Does Aid for Education Educate Children? Evidence from Panel Data," Working papers 06-146, KOF Swiss Economic Institute, ETH Zurich. [Downloadable!]
Thierry Tressel & Alessandro Prati, 2006. "Aid Volatility and Dutch Disease: Is There a Role for Macroeconomic Policies?," IMF Working Papers 06/145, International Monetary Fund. [Downloadable!]
Hefeker, Carsten, 2005. "Project Aid or Budget Aid? The Interests of Governments and Financial Institutions," Proceedings of the German Development Economics Conference, Kiel 2005 19, Verein für Socialpolitik, Research Committee Development Economics. [Downloadable!]
Silvia Marchesi & Laura Sabani, 2005. "IMF Concern for Reputation and Conditional Lending Failure: Theory and Empirics," Development Working Papers 206, Centro Studi Luca d'Agliano, University of Milano. [Downloadable!]
Other versions:
- Silvia Marchesi & Laura Sabani, 2005. "IMF concern for reputation and conditional lending failure: theory and empirics," Department of Economics University of Siena 447, Department of Economics, University of Siena. [Downloadable!]
- Silvia Marchesi & Laura Sabani, 2005. "IMF concern for reputation and conditional lending failure: theory and empirics," FMG Discussion Papers dp535, Financial Markets Group. [Downloadable!] (restricted)
- Silvia Marchesi & Laura Sabani, 2007. "IMF concern for reputation and conditional lending failure: theory and empirics," Working Papers 114, University of Milano-Bicocca, Department of Economics, revised 2007. [Downloadable!]
- Marchesi, Silvia & Sabani, Laura, 2007. "IMF concern for reputation and conditional lending failure: Theory and empirics," Journal of Development Economics, Elsevier, vol. 84(2), pages 640-666, November. [Downloadable!] (restricted)

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