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Good Governance and Good Aid Allocation

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Author Info

  • Epstein, Gil S.

    ()
    (Bar-Ilan University)

  • Gang, Ira N.

    ()
    (Rutgers University)

Abstract

We model the aid allocation decision where the donor government has announced that good governance is the criterion for receiving aid. Potential recipients must compete for the aid funds. The structure of the competition is important to the donor in terms of achieving good governance, and to the recipients in terms of what they receive. The leaders of potential recipient countries look at aid availability through this contest as part of the competing objectives they face – some good, some not good. The donor country prefers a contest under which the aid will only go to one country while the leaders of the receiving countries prefer that each country obtains the proportion of aid relative to its governance quality. If poverty reduction is an independent goal as well, a poverty trap may be created. With good governance as a criterion, donors may work through both bilateral and multilateral agencies.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3585.

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Length: 25 pages
Date of creation: Jul 2008
Date of revision:
Publication status: published in: Journal of Development Economics, 2009, 89(1), 12-18
Handle: RePEc:iza:izadps:dp3585

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Keywords: governance; decentralization; rent seeking; foreign aid;

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References

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  1. Epstein, Gil S. & Gang, Ira N., 2005. "Contests, NGOs and Decentralizing Aid," IZA Discussion Papers 1711, Institute for the Study of Labor (IZA).
  2. Anwar, Mumtaz & Michaelowa, Katharina, 2004. "The Political Economy of US Aid to Pakistan," HWWA Discussion Papers 302, Hamburg Institute of International Economics (HWWA).
  3. Che, Yeon-Koo & Gale, Ian L, 1998. "Caps on Political Lobbying," American Economic Review, American Economic Association, vol. 88(3), pages 643-51, June.
  4. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
  5. Ira N. Gang & Haider Ali Khan, 1998. "Foreign Aid and Fiscal Behavior in a Bounded Rathionality Model: Different Policy Regimes," Departmental Working Papers 199812, Rutgers University, Department of Economics.
  6. Epstein, Gil S., 2000. "Personal productivity and the likelihood of electoral success of political candidates," European Journal of Political Economy, Elsevier, vol. 16(1), pages 95-111, March.
  7. Mavrotas, George & Villanger, Espen, 2006. "Multilateral Aid Agencies and Strategic Donor Behaviour," Working Paper Series DP2006/02, World Institute for Development Economic Research (UNU-WIDER).
  8. Feyzioglu, Tarhan & Swaroop, Vinaya & Zhu, Min, 1998. "A Panel Data Analysis of the Fungibility of Foreign Aid," World Bank Economic Review, World Bank Group, vol. 12(1), pages 29-58, January.
  9. Gil S. Epstein & Shmuel Nitzan, 2002. "Effort and Performance in Public-Policy Contests," CESifo Working Paper Series 634, CESifo Group Munich.
  10. Gil Epstein & Shmuel Nitzan, 2006. "Reduced prizes and increased effort in contests," Social Choice and Welfare, Springer, vol. 26(3), pages 447-453, June.
  11. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1992. "Rigging the Lobbying Process: An Application of the All- Pay Auction," Papers 9-92-2, Pennsylvania State - Department of Economics.
  12. Collier, Paul & Dollar, David, 1999. "Aid allocation and poverty reduction," Policy Research Working Paper Series 2041, The World Bank.
  13. Mark McGillivray & Simon Feeny & Niels Hermes & Robert Lensink, 2006. "Controversies over the impact of development aid: it works; it doesn't; it can, but that depends …," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(7), pages 1031-1050.
  14. Sajal Lahiri & Katharina Michaelowa, 2006. "Editorial: The Political Economy of Aid," Review of Development Economics, Wiley Blackwell, vol. 10(2), pages 177-178, 05.
  15. Burnside, Craig & Dollar, David, 1997. "Aid, policies, and growth," Policy Research Working Paper Series 1777, The World Bank.
  16. Ellingsen, T., 1990. "Strategic Buyers and the Social Cost of Monopoly," Papers 05-90, Norwegian School of Economics and Business Administration-.
  17. Heckelman, Jac & Knack, Stephen, 2005. "Foreign aid and market-liberalizing reform," Policy Research Working Paper Series 3557, The World Bank.
  18. Arye L. Hillman & John G. Riley, 1989. "Politically Contestable Rents And Transfers," Economics and Politics, Wiley Blackwell, vol. 1(1), pages 17-39, 03.
  19. Gang, Ira N. & Ali Khan, Haider, 1990. "Foreign aid, taxes, and public investment," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 355-369, November.
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Citations

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Cited by:
  1. Prabir De, 2010. "Governance, Institutions, and Regional Infrastructure in Asia," Working Papers id:3029, eSocialSciences.
  2. Epstein, Gil S. & Mealem, Yosef & Nitzan, Shmuel, 2012. "Lotteries vs. All-Pay Auctions in Fair and Biased Contests," IZA Discussion Papers 7032, Institute for the Study of Labor (IZA).
  3. Brech, Viktor & Potrafke, Niklas, 2013. "Donor ideology and types of foreign aid," Munich Reprints in Economics 20229, University of Munich, Department of Economics.
  4. Temple, Jonathan R.W., 2010. "Aid and Conditionality," Handbook of Development Economics, Elsevier.
  5. Gaoussou Diarra & Patrick Plane, 2011. "Assessing the World Bank's influence on the good governance paradigm," Working Papers halshs-00617576, HAL.
  6. Gil S. Epstein & Ira N. Gang, 2010. "A Political Economy of the Immigrant Assimilation: Internal Dynamics," Working Papers 2010-13, Department of Economics, Bar-Ilan University.
  7. Prabir De, 2010. "Does Governance Matter for Enhancing Trade? Empirical Evidence from Asia," Governance Working Papers 22792, East Asian Bureau of Economic Research.
  8. Prabir De, 2010. "Governance, Institutions, and Regional Infrastructure in Asia," Governance Working Papers 22878, East Asian Bureau of Economic Research.
  9. Prabir De, 2011. "Do institutions matter for trade in Asian countries?," STUDIES IN TRADE AND INVESTMENT, in: Trade-led growth: A sound strategy for Asia, chapter 9 United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
  10. Terence M. Garrett & Arthur Sementelli, 2012. "Knowledge production: public management and the market spectacle," International Journal of Social Economics, Emerald Group Publishing, vol. 39(7), pages 456-473, July.

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