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The Hope for Hysteresis in Foreign Aid

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Author Info

  • Gil S. Epstein

    ()
    (Bar-Ilan University)

  • Ira N Gang

    ()
    (Rutgers University)

Abstract

We argue that a purpose of foreign aid is to whet the appetite of the recipient in order to bring about a long term commitment to what the donor perceives as a need, but which the recipient may rank lower down on his list of undertakings, or may be sufficiently resource constrained as to be unable to start the project. In other words, we explore the implications and conditions for success of a donor trying to affect long-term recipient policy by creating path dependence. Once the project is established, aid can be removed without reversing the process that has been set in motion. Quite simply, the donor wants its project to stick. We place a formal structure on this.

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Bibliographic Info

Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200628.

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Length: 20 pages
Date of creation: 01 Dec 2006
Date of revision:
Handle: RePEc:rut:rutres:200628

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Related research

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

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References

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  1. Rune Jansen Hagen, 2006. "Buying Influence: Aid Fungibility in a Strategic Perspective," Review of Development Economics, Wiley Blackwell, vol. 10(2), pages 267-284, 05.
  2. Zafar Iqbal, 1997. "Foreign Aid and the Public Sector: A Model of Fiscal Behaviour in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 36(2), pages 115-129.
  3. Gil S. Epstein & Ira N. Gang, 2006. "Contests, NGOs, and Decentralizing Aid," Review of Development Economics, Wiley Blackwell, vol. 10(2), pages 285-296, 05.
  4. Epstein, Gil S. & Gang, Ira N., 2006. "Decentralizing Aid with Interested Parties," Working Paper Series RP2006/06, World Institute for Development Economic Research (UNU-WIDER).
  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. Khan, Haider Ali & Hoshino, Eiichi, 1992. "Impact of foreign aid on the fiscal behavior of LDC governments," World Development, Elsevier, vol. 20(10), pages 1481-1488, October.
  7. 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.
  8. M. McGillvray & O. Morrissey, 2001. "Aid Illusion and Public Sector Behaviour," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 118-136.
  9. Heller, Peter S, 1975. "A Model of Public Fiscal Behavior in Developing Countries: Aid, Investment, and Taxation," American Economic Review, American Economic Association, vol. 65(3), pages 429-45, June.
  10. 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.
  11. 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.
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