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The Costs of Favoritism: Is Politically-Driven Aid Less Effective?

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  • Dreher, Axel

    ()
    (Heidelberg University)

  • Klasen, Stephan

    ()
    (University of Göttingen)

  • Vreeland, James Raymond

    ()
    (Georgetown University)

  • Werker, Eric

    ()
    (Harvard Business School)

Abstract

As is now well documented, aid is given for both political as well as economic reasons. The conventional wisdom is that politically-motivated aid is less effective in promoting developmental objectives. We examine the ex-post performance ratings of World Bank projects and generally find that projects that are potentially politically motivated – such as those granted to governments holding a non-permanent seat on the United Nations Security Council or an Executive Directorship at the World Bank – are no more likely, on average, to get a negative quality rating than other projects. When aid is given to Security Council members with higher short-term debt, however, a negative quality rating is more likely. So we find evidence that World Bank project quality suffers as a consequence of political influence only when the recipient country is economically vulnerable in the first place.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4820.

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Length: 46 pages
Date of creation: Mar 2010
Date of revision:
Publication status: published in: Economic Development and Cultural Change, 2013, 62 (1), 157-191
Handle: RePEc:iza:izadps:dp4820

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Keywords: United Nations Security Council; political influence; aid effectiveness; World Bank;

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Citations

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Cited by:
  1. Ugo Panizza, 2013. "Financial Development and Economic Growth: Known Knowns, Known Unknowns, and Unknown Unknowns," IHEID Working Papers, Economics Section, The Graduate Institute of International Studies 14-2013, Economics Section, The Graduate Institute of International Studies.
  2. Kilby, Christopher, 2013. "The political economy of project preparation: An empirical analysis of World Bank projects," Journal of Development Economics, Elsevier, Elsevier, vol. 105(C), pages 211-225.
  3. Denizer, Cevdet & Kaufmann, Daniel & Kraay, Aart, 2011. "Good countries or good projects ? macro and micro correlates of World Bank project performance," Policy Research Working Paper Series 5646, The World Bank.
  4. James Vreeland, 2011. "Foreign aid and global governance: Buying Bretton Woods – the Swiss-bloc case," The Review of International Organizations, Springer, Springer, vol. 6(3), pages 369-391, September.
  5. Sivlai Marchesi & Emanuela Sirtori, 2010. "Is two better than one? Effects on growth of Bank-Fund interaction," Working Papers, University of Milano-Bicocca, Department of Economics 189, University of Milano-Bicocca, Department of Economics, revised Jun 2010.
  6. Humphrey, Chris & Michaelowa, Katharina, 2013. "Shopping for Development: Multilateral Lending, Shareholder Composition and Borrower Preferences," World Development, Elsevier, Elsevier, vol. 44(C), pages 142-155.
  7. Denizer, Cevdet & Kaufmann, Daniel & Kraay, Aart, 2013. "Good countries or good projects? Macro and micro correlates of World Bank project performance," Journal of Development Economics, Elsevier, Elsevier, vol. 105(C), pages 288-302.

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