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Politics and the Effectiveness of Foreign Aid

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  • Peter Boone
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    Abstract

    Critics of foreign aid programs have long argued that poverty reflects government failure. In this paper I analyze the effectiveness of foreign aid programs to gain insights into political regimes in aid recipient countries. My analytical framework shows how three stylized political/economic regimes labeled egalitarian, elitist and laissez-faire would use foreign aid. I then test reduced form equations using data on nonmilitary aid flows to 96 countries. I find that models of elitist political regimes best predict the impact of foreign aid. Aid does not significantly increase investment and growth, nor benefit the poor as measured by improvements in human development indicators, but it does increase the size of government. I also find that the impact of aid does not vary according to whether recipient governments are liberal democratic or highly repressive. But liberal political regimes and democracies, ceteris paribus, have on average 30% lower infant mortality than the least free regimes. This may be due to greater empowerment of the poor under liberal regimes even though the political elite continues to receive the benefits of aid programs. An implication is that short term aid targeted to support new liberal regimes may be a more successful means of reducing poverty than current programs.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5308.

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    Date of creation: Oct 1995
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    Publication status: published as European Economic Review, vol. 40, no. 2, pp. 289-329, February 1996
    Handle: RePEc:nbr:nberwo:5308

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    Cited by:
    1. Philipp Harms & Matthias Lutz, 2004. "The Macroeconomic Effects of Foreign Aid: A Survey," University of St. Gallen Department of Economics working paper series 2004 2004-11, Department of Economics, University of St. Gallen.
    2. Devarajan, Shantayanan & Rajkumar, Andrew Sunil & Swaroop, Vinaya, 1999. "What does aid to Africa finance?," Policy Research Working Paper Series 2092, The World Bank.
    3. Kilby, Christopher & Dreher, Axel, 2009. "The Impact of Aid on Growth Revisited: Do Donor Motives Matter?," IZA Discussion Papers 4156, Institute for the Study of Labor (IZA).
    4. World Bank, 2004. "Serbia and Montenegro : An Agenda for Economic Growth and Employment," World Bank Other Operational Studies 14487, The World Bank.
    5. Leiderer, Stefan, 2013. "Donor coordination for effective government policies? Implementation of the new aid effectiveness agenda in health and education in Zambia," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
    6. Christopher Kilby, 2012. "Assessing the contribution of donor agencies to aid effectiveness: The impact of World Bank preparation on project outcomes," Villanova School of Business Department of Economics and Statistics Working Paper Series 20, Villanova School of Business Department of Economics and Statistics.
    7. Chilosi, Alberto, 2010. "Poverty, Population, Inequality, and Development: the Historical Perspective," MPRA Paper 27761, University Library of Munich, Germany.
    8. Claudia M. Buch & Anja Kuckulenz & Marie-Helene Le Manchec, 2002. "Worker Remittances and Capital Flows," Kiel Working Papers 1130, Kiel Institute for the World Economy.

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